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If I've had a residential rental property for the past 7 years but haven't claimed a depreciation expense my returns, how should I handle it? Thanks

Forum|Forum|6 years ago
June 7, 2019
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From what i've read, I should not amend the past three returns, but use form 3115 to do a catch up on depreciation. Any help is appreciated. Thanks

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Best answer by view2

Even if it was just a mistake, you would treat it as an accounting method change and file a Form 3115 in the current year and take the depreciation as a section 481(a) adjustment.

§481(a) Adjustment

The adjusted basis of the depreciable property is changed when the taxpayer changes from an impermissible method of depreciation to a permissible method. This change results in a 481(a)adjustment. The adjustment is usually taken into account over a four-year period, beginning in the year of change. However, if the entire §481(a) adjustment is less than $25,000, a de minimis rule permits taxpayers to take 100% of the amount into account in the year of change. A negative adjustment (in the taxpayer’s favor) can be taken in full in the year of change per Rev. Proc. 2002-19.

The §481(a) adjustment equals the difference between the total depreciation taken in prior years under the old method and the total depreciation allowable for those years under the new method. As of the beginning of the year of change, the basis of the depreciable property must reflect the §481(a) adjustment.

V

view2Answer

Employee

Even if it was just a mistake, you would treat it as an accounting method change and file a Form 3115 in the current year and take the depreciation as a section 481(a) adjustment.

§481(a) Adjustment

The adjusted basis of the depreciable property is changed when the taxpayer changes from an impermissible method of depreciation to a permissible method. This change results in a 481(a)adjustment. The adjustment is usually taken into account over a four-year period, beginning in the year of change. However, if the entire §481(a) adjustment is less than $25,000, a de minimis rule permits taxpayers to take 100% of the amount into account in the year of change. A negative adjustment (in the taxpayer’s favor) can be taken in full in the year of change per Rev. Proc. 2002-19.

The §481(a) adjustment equals the difference between the total depreciation taken in prior years under the old method and the total depreciation allowable for those years under the new method. As of the beginning of the year of change, the basis of the depreciable property must reflect the §481(a) adjustment.