sold a rental property depreciation

[Tommyknocker]

sold a rental property owned for over 40 years in 2022.

It has been fully depreciated for OVER 20 years.

looks like when I started using turbo tax in early 2000's,

I must have put in full price of property and did not separate land.

I believe originally return had net land value.

This full price has carried forward for the last 20 years.

Is there a way to correct this error or do I continue with full price as what was depreciated?

This is what my return has indicated for 20 years.

House cost 37,600 in 1979

[Carl]

You really need to seek professional help to fix this. Especially if your state taxes personal income. You've taken way more depreciation than allowed each year for the entire 27.5 years it was depreciated. Basically, that would make your cost basis in the entire property ZERO and 100% of the sales price (minus sales expenses) taxable income to you.  Therefore, I suggest you RUN to a local professional for help with this, and I hope they can keep your tax burden on the sale (as well as possible fines and penalties) as low as possible.

[Tommyknocker]

Thanks for the reply.

[AmyC]

While going through the sale, it shows the cost of the house with no land value. This is fine at this point since you are changing things. 

You will need to input the total depreciation taken over the 40 years versus what the program knows. The program will ask you to confirm your depreciation, enter the correct amount. The program will accept what you enter.

I agree with Carl that this situation is exceptional and you will have quite the tax bill. You have no basis and should amend returns.

[Carl]

You have no basis and should amend returns.

The problem is bigger than you may think. Recaptured depreciation is taxed at the ordinary tax rate, while capital gains on the sale (looking at SEC1250 gains here) are taxed at the capital gains tax rate. If you just recapture all depreciation, then your entire original cost basis in the property will be taxed at the ordinary tax rate, since that's what you will basically be recapturing.

While you can do that, it's going to cost you big time on the tax front.

[Tommyknocker]

Returns can be amended back 20 years?

house and land were done correctly originally  i believe

i have 2001 return but accountant did not give me the amortization schedule only the schedule E 

showing total of depreciation for that year

[Carl]

Returns can be amended back 20 years?

Don't know for a fact that's true. But any amending done more than three years back that would result in additional refund, will not be paid to you. There's a three year statute of limitations on that. But, if amending causes you to owe more tax, then you still have to pay it, alone with interest and penalties.

house and land were done correctly originally  i believe

I understand where you're coming from. Unfortunately, the IRS doesn't work on what we believe. Only what we can prove.

i have 2001 return but accountant did not give me the amortization schedule only the schedule E 

showing total of depreciation for that year

Are you saying you have the IRS Form 4562 for that tax year? I would expect you to have two of those for that property, and they both print in landscape format. One is title "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation".

If you have only the first one, I can work with that to give you numbers that you can work with to help you determine your best course of action on this. However, if you scan it in to post as an attachment here, make absolutely certain you black out all personally identifiable information on the form, such as your name, property address, SSN and anything else a troll would find useful.

[Carl]

Returns can be amended back 20 years?

Don't know for a fact that's true. But any amending done more than three years back that would result in additional refund, will not be paid to you. There's a three year statute of limitations on that. But, if amending causes you to owe more tax, then you still have to pay it, alone with interest and penalties.

house and land were done correctly originally  i believe

I understand where you're coming from. Unfortunately, the IRS doesn't work on what we believe. Only what we can prove.

i have 2001 return but accountant did not give me the amortization schedule only the schedule E 

showing total of depreciation for that year

Are you saying you have the IRS Form 4562 for that tax year? I would expect you to have two of those for that property, and they both print in landscape format. One is title "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation".

If you have only the first one, I can work with that to give you numbers that you can work with to help you determine your best course of action on this. However, if you scan it in to post as an attachment here, make absolutely certain you black out all personally identifiable information on the form, such as your name, property address, SSN and anything else a troll would find useful.

[Tommyknocker]

thank you 

what I have is only 2001- 1040 schedule E.

form was done by hand my account at the time has long since passed away.

The accountant was competent. 

the mistake was mine when I started using turbo tax, I assume, I typed in the cost of the house

and did not understand net land

[AmeliesUncle]

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@Tommyknocker wrote:

It has been fully depreciated for OVER 20 years.

looks like when I started using turbo tax in early 2000's,

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If it was fully depreciated before you entered it into TurboTax, TurboTax should not have have taken any depreciation. 

If that is true, nothing unusual needs to be done.    Just enter the correct amounts now and report the sale.

[Tommyknocker]

turbo tax did not take any depreciation.

I have turbo tax records back to when began to use in 2006

from 2006 on depreciation and amortization report 

service date 5-1979

cost net of land 37600 (this is not net of land but full price)

depreciation basis 37600

life 24years

prior depreciation 515

current depreciation 0

I am sure house was fully depreciated.  In this time frame.

with the house and land separated

[AmeliesUncle]

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@Tommyknocker wrote:

I have turbo tax records back to when began to use in 2006

prior depreciation 515

I am sure house was fully depreciated.  In this time frame.

with the house and land separated

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The "prior depreciation" might indicate you might have used TurboTax before 2006 (in 2003). 

However, *IF* you did mistakenly depreciate the land for a very short time, it appears to be for an extremely short amount of time, and I wouldn't bother worrying about it.  It would be different if you had done it for many years, but that isn't the case for you.

Just correct add the land value in now, and make sure the "prior depreciation" for the building is the full amount of the building cost (total cost minus the land value).