Commercial Property Depreciation

Forum|Forum|3 years ago
March 28, 2023
1 reply
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Helping my parents do their taxes using TT.

They have a commercial property that was purchased in September of 1992. From ~2008 to 2021, the CPA they used had set the Building Depreciation rate at ~$5,000; using Straight-Line method for 31.5 years. From 1992 to ~2007, they don't have good records here but I believe they did not take the appropriate depreciation amount (meaning they took significantly less).

Current situation is, based on last year's tax filings done by the CPA, the Total Depreciation amount taken up to that time was significantly less than it should have been (the amount was ~$108,000 instead of something closer to ~$150,000). Thus, when I fill in the data in TT for the Depreciation rate, TT calculates a new amount of ~$25,000. I assume this is incorrect and I need to use $5,000. But, I'm not seeing a way to manually change this number.

Question: Is it correct that I need to "over-rule" the amount the TT came up with for Depreciation? If so, how do I change this?

Depreciation

Mike9241

this situation may best be put in the hands of a pro to look over whatever records you have and advise you on the appropriate course of action. it's possible that in the years 1992 to 2007 the CPA may have capitalized certain costs increasing the annual depreciation amount so less than $5K per year may have been proper in those years. if it's determined the wrong amount was taken steps should be taken to correct this. The correction would require filing form 3115 and calculating the correct depreciation vs what was taken if there were errors I don't think you want to take on the task of doing the form yourself. the tax laws state then should the property be sold to compute the taxable gain the larger of the allowed (what was actually taken) or allowable (what should have been taken) depreciation must be used. so that could mean an extra $42,000 gain for which no deduction was ever taken.

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if the correction is not done ASAP there is always the risk of permanently losing the deduction due to inheritance.

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you can not catch up the depreciation without filing form 3115 so if $5K is what the annual amount would be that's all you can take. there can be other tax issues if the property is used by your parents as part of their business or even held in a separate entity. This would be another reason to seek the help of a pro