2006 & 2007 Schedule E Line 20 Depreciation shows 0 despite 2006 Form 4562 showing $2,808 of Depreciation deduction. Is there income limit to claiming Depr deduction?

[The Good Son]

Son and Parents Bought home in 1999, Parents used it as Main Home. It was rented out for 12 months between July 06 and 2007. Home Sold in 2024. Son filed Sch E in 2006 & 2007 using Turbo Tax. Sch E Line 20 for both years shows Depreciation deduction as 0. Does this make sense, is there a reason why depreciation was limited to 0? It is concerning as I read that this depreciation should have been take if it could have been taken. Calculating basis for 2024 tax filing, figuring depreciation recapture, is it possible that depreciation was indeed 0 for 2006 and 2007? Does AGI limit have something to do with it? Please help, Thank You!

[Vanessa A]

No, even in 2006, Depreciation on a rental property was not limited to AGI.  As to why the property shows depreciation of $0, it would be impossible to answer that at this point.  It should have had some depreciation for the 12 months it was rented out. It is possible that for some reason you did not take it, whether it was due to an entry issue or a choice not to take it.  

Either way, you will still have to recapture the depreciation as if it was taken even if it was not taken. 

[The Good Son]

Thank you Vanessa!

Are there any remedies to fix this issue at this point?  Is filing Form 3115 an option for me for the 2024 return i.e. the year the home was sold, or is it too late?  Is there a super simple explanation in layperson terms as to how Form 3115 could resolve the accidentally missed depreciation deductions for 12 months?  

Any other simple way to resolve this?  

Thank You!!    

[Mike9241]

who  (family, friends or others) rented the property and was fair rent paid? In a Tax Court case, parents rented the home at less than fair rental value. No rental expenses were allowed but the owners had to report the income. (Jackson, TC Memo 1999-226

[The Good Son]

Parents travelled away from their Main Home for a year, Son who lives in a different state, and Parents, engaged a Realtor who presented potential Rental Applicants.  After appropriate credit screening, a local family was selected and the Realtor was paid their commission (1 month of rent if I recall correctly).  Indeed, Fair Rent was Paid, documentation exists.

I have no concerns about that accounting, it was all proper and well executed, good real estate management company.  Parents returned to Main Home after the 1 year lease to the Renters was up.  Parents continued to live in this, their Main Home till one parent passed away in 2023.  Subsequently, Home was Sold in 2024.

I have great feedback from others on this forum regarding how to calculate Basis and how to handle Depreciation Recapture (for Rental and Business Use) between Son and Parents i.e. the 3 purchasers of home in 1999.

Really the question is about Rental Depreciation Recapture.  For whatever reason, the tax forms from 2006 and 2007 (the 12 months during which it was rented) claimed 0 for Rental Depreciation.  I am trying to understand why this would have happened, did I make a mistake when navigating Turbo Tax Online back then or did it disallow the depreciation deductions for some other reason based on my tax info at that time.

The reason I am quibbling about 12 months of rental depreciation recapture is that I read in forums that I have to Recapture this Rental Depreciation regardless of whether it was actually claimed in the past.  As long as "it could have been claimed" it should be recaptured.   

Any help to put this issue to bed, in a fair way would be greatly appreciated.  (i.e. I didn't deduct the depreciation for whatever reason, is there a proper remedy to fix it now so that I am not forced to recapture depreciation that "I could have claimed")

Thank You!!