Correcting Depreciation Form 3115

[penny1734]

Hello,

I missed taking deprecation on a rental property for years 2014-2018.   I have already filed my 2018 taxes which were accepted.  After I filed my 2018 taxes I realized I missed taking depreciation for years 2014-2018.  

Do I amend my 2018 taxes with the missed depreciation for year 2018 AND complete Form 3115 for years 2014-2017?  OR

Do I amend my 2018 taxes with taking the missed depreciation for years 2014-2018 all on Form 3115? OR

Do I amend my 2018 Taxes with the missed depreciation only for year 2018 AND amend my 2017 taxes with Form 3115 for the missed years of 2014-2017. 

Thanks!

[Critter]

Well if you have already filed the 2018 return you must now WAIT and file the 3115 on the 2019 return per the instructions : 

Form 3115
To make a change under Rev. Proc. 2011-14, the taxpayer must attach Form 3115 to a timely
filed (including extensions) original return for the year of the change. In addition, the taxpayer
must file a copy of Form 3115 with the IRS National Office no earlier than the first day of the
year of change and no later than when Form 3115 is filed with the federal income tax return for
the year of change.

[Critter]

And you will ONLY file the 3115 ... do NOT go back and amend the prior year returns. 

[tagteam]

I generally concur with @Critter's replies.

However, pursuant to Rev. Proc. 2015-13 and Treas. Reg. §301.9100-2, and in compliance with the relevant section of Rev. Proc. 2015-13, an amended return for the 2018 tax year could be filed along with Form 3115. There is an automatic 6-month extension provided the original return was timely filed.

Regardless, this procedure is extremely complex and should not be attempted as a DIY project. Professional tax preparation and/or guidance is highly recommended.

[penny1734]

Thanks for all your replies.   While I will likely seek professional help when I file my 2019 taxes to take care of Form 3115, I think I should file amended returns for 2018 to take depreciation for 2018.  

Would this make the 3115 process more complicated in 2019?

[tagteam · Accepted solution]

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@penny1734 wrote:

I think I should file amended returns for 2018 to take depreciation for 2018.  

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That would actually be counter to the established procedure for rectifying the failure to take depreciation deductions over two or more tax years. 

If you are going to amend your 2018 return, then you also need to file Form 3115 since you used an improper method of accounting in previous years. The alternative would be to do nothing and file Form 3115 with your 2019 income tax return.

[penny1734]

That makes the most sense to me.  Thank you. 

[golfandtaxes]

How would you go about correcting tax returns for an incorrect basis used? Basis for depreciation over years is too low. We can amend 3 years or wait until year of sale and file form 3115 to catchup on missed depreciation?

[tagteam]

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@golfandtaxes wrote:

How would you go about correcting tax returns for an incorrect basis used? Basis for depreciation over years is too low. We can amend 3 years or wait until year of sale and file form 3115 to catchup on missed depreciation?

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There is sort of a split of opinion on this scenario with some professionals asserting that an incorrect basis can be adjusted by filing Form 3115 and others asserting the use of an incorrect basis is not an impermissible method of accounting that is subject to a 481(a) adjustment on Form 3115 (i.e., prior, open, returns can only be amended).

Regardless, you should consult a tax professional with respect to this situation. If it is determined that filing Form 3115 is the appropriate course of action, you will need professional tax guidance and/or return preparation.