Past Depreciation on Rentals

Forum|Forum|3 years ago
October 16, 2022
2 replies
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I feel so misinformed and am embarrassed to ask but it could save me a lot of money.

When looking at financing another property a realtor asked me why I had not claimed depreciation on my two rentals.

I have owned these rentals for almost 20 years and they have been rented regularly. I have never claimed depreciation on my taxes and just ignored the prompt on Turbotax, thinking it was for houses like mobile homes that depreciated in value.

I do not know what to do at this point. Should I start claiming depreciation with this year or back up the three years and refile? I asked for a tax extension and it is due tomorrow. I want to maximize what I can get back.

TurboTax Deluxe Online

Best answer by Critter-3

The form 3115 done correctly especially in the year of sale will allow you to take all the missed depreciation on the Sch E to combat the recaptured depreciation you must take ... so RUN to a local tax pro and get the advice you greatly need.

Critter-3

OMG !!!! Your only option is to file the form 3115 which is NOT a DIY project so for the next tax return you need to use a local tax pro that understands the form 3115. You cannot amend to take any prior depreciation nor can you start doing so now without filing the proper form.

For the 2021 return ... if you will have a refund then the deadline tomorrow doesn't mean anything to you so seek out a local tax pro Tuesday or file the 2021 return without the depreciation or form 3115 and use a paid tax pro next year.

Good catch by the realtor and bad move by you for ignoring the prompt all these years ... never do that again.

Carl11_2

Employee

do not know what to do at this point. Should I start claiming depreciation with this year or back up the three years and refile? I asked for a tax extension and it is due tomorrow. I want to maximize what I can get back.

Don't walk. RUN! To a tax professional in your local area to get this fixed. As for "getting back" anything, you can probably forget about that. Especially if your state taxes personal income, as you're going to have a double whammy if that's the case.

A tax professional is your best bet, as depending on your specific circumstances they can most likely reduce any back taxes, fines and penalties that may be imposed. With 20 years of depreciation missed on two properties, you're talking thousands of dollars here that you did not deduct in the past as required. The possible costs to fix this on the tax front will make the cost of professional help seem like a pittance in comparison most likely. So you may want to consider ignoring the extended filing deadline for now and just seek professional help come Monday morning.

Seeing that it appears you've been talking with a realtor, I get the impression you may be looking to sell the properties. A tax pro may help you determine that it's just best to continue on as you have been, and take the hit when you sell the properties.

When you sell a rental property you are required to recapture and pay taxes on all depreciation taken, or in your case, recapture and pay taxes on the depreciation you "should" have taken. Recaptured depreciation is taxed at the ordinary income tax rate up to a maximum of 25%, while any capital gain realized on the sale is taxed at the capital gains tax rate.