Question

481(a) adjustment, wrong depreciation taken

Forum|Forum|5 years ago
April 8, 2021
1 reply
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As I understand, 481(a) adjustment can be taken over 4 tax years (with form 3115). Is there guidance/examples on the calculations?

For example, too much depreciation was taken over 10 years - 1200/year (12,000 over 10 years). The correct depreciation should have been 800/year (8,000). To correct over 4 years will the overage of 4,000 will be equally divided to 1,000/year. Since the correct regular depreciation is 800, then for next 4 years there will be no depreciation taken and there is an additional income of $200. Or is it much more complicated than that? Appreciate any guidance or help.

Not A Product Question

Carl11_2

Employee

While the 3115 is included with the program, there is practically no help or guidance provided for it. The possible uses of this form for "fixing" things is just to complex. Why TTX included it is beyond me. But for those who know what they're doing when it comes to the 3115, I guess it would benefit the company to not lose the customer.

Overall, the 3115 is not simple by any stretch, and if you don't know what you're doing when it comes to the 3115, you are highly advised to seek professional help. The math is "never" as simple as we may think. Doing the 3115 incorrectly to fix a problem, can actually be the catalyst that triggers an audit and end up costing more on the tax front in the long run.

L

LM2020Author

Thank you. Unfortunately, the wrong depreciation started on the return prepared by a professional. The land value was not accounted for and the depreciation was depreciated as a residential real estate, not commercial. I looked at Pub 946, Instructions for 3115 and read the entire 3115. Seems like it would be a common mistake that IRS would have an easier fix (at least for small adjustments). Thank you again for your input.

M-MTax

Might be a common mistake but form 3115 is NOT for your situation. It's when you adopt a method of accounting that isn't allowed and your case involves a basis/math error.....and basis or math errors are not "methods of accounting that are not allowed" so you don't use form 3115. You can amend the open tax years and that's about it.