Claiming catch up depreciation when changing rental asset from a room in my home to the whole home.

Forum|Forum|11 months ago
April 8, 2025
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I had a few years of renting a room in my home and failed to include a deduction for depreciation for those tax years since I incorrectly assumed depreciation should only be used when renting the entire house. I was wrong. Now I am renting the entire house and realize I should have been including a depreciation component for the fraction of my home the room rental represented. So this year I plan to file Form 3115 together with my FED taxes to include the additional "catch up" depreciation deduction. I believe I understand the process and how to fill out Form 3115 but have a couple of questions regarding how to answer TurboTax interview questions. Even though I failed to include depreciation for those prior years (too many to just file amended returns) I should still let TurboTax assume I had been claiming depreciation for those prior years so that it will compute the correct depreciation deduction for this year.

Then I will compute the catch up amount separately and include this as an "other expense" on line 19 with description "Catch up depreciation from Form 3115". So the question I've got here is what value should appear in the "Total Depreciation Claimed in Previous Years" interview box. I've assume I should not put 0 in this box so that TurboTax computes the correct amount for this year. Also, the catch up depreciation for the earlier years (2019-2023) must use just the starting basis value for the fraction of the home the room represents. Will this fly? I understand that to include Form 3115 with my return I won't be able to eFile.

Lastly, the rental property is in Vermont. Any idea whether I need to file something analogous with my Vermont state return?

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Best answer by ThomasM125

For the prior depreciation, you should enter what that should have been, which will be the amount of your Form 3115 adjustment. The catch up depreciation would just use the portion of the house applicable to the room that was rented. The Vermont return will work off of your adjusted gross income on your federal tax return, that will include the depreciation adjustment, so there is nothing special that needs to be done there.

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tomandjerry1Author

Great. Thank you so much. After a bit more research I believe I've come to the same conclusion as yours. I must file Form 3115 with this year's return and use the catch up value I've calculated with that form to answer TurboTax's question regarding prior years depreciation.

As for handling the switch from renting just a part of the property to the entire property, I think I understand this now too. For the first N years that I rented just F% of my property, with initial full property basis PB, I should compute N years of straight line depreciation using the starting basis F*PB. So that would be ( (F*PB) / 27.5 ) each year, for N years. Then in year N+1 and onwards, the starting basis for the remaining life of the property is PB - ( N * ( (F*PB) / 27.5) ). That is, I reduce the basis by the amount of depreciation I've already taken, and then use the straight line formula for the shortened useful life, which is then (27.5 - N), applied to the adjust full property's basis. I'm pretty sure that's exactly how TurboTax has used the value for "prior year's depreciation" to determine the depreciation deduction amount for this year's return.

One last comment pertaining to depreciation calculations. I believe that the midmonth convention requires that the first "rental use" month is always treated as half a month, so that the 1st year of depreciation must always be reduced accordingly by 1/2 a month's worth.

One last point, I've seen a fair number of comments regarding the nightmarish 8-pages of Form 3115 mishmash which one must navigate when attempting to correct missing deprecation. It strikes me that this is probably a pretty common error/oversight of many casual AirBnB hosts who use TurboTax. In fact, I've come across more than one criticism of TurboTax for failing to include a resounding warning when one includes rental income while also failing to include depreciation.

Are you listing Intuit? How about a warning that once you start using your home to generate significant rental income, then depreciation is not really that optional. And maybe make it as prominent as the recurring upgrade purchase offers?

As for the Form 3115 nightmare, I was somewhat bewildered by the dearth of applicable Google results when attempting to find useful tutorials on using Form 3115 to solve this one specific, and I assume pretty common, problem. I eventually did prevail, and believe I've somewhat descrambled Form 3115, at least for this specific objective, so I will return to this topic, once the tax season tomfoolery is behind us, to share.

THANKS AGAIN!!