My main issue is from the years 2005 until the year 2020, I claimed the wrong cost basis on 2 rental homes. What I claimed for the cost was the price I paid for them. What I should have claimed was an adjusted cost basis from form 8824 in the year 2005.
To compound the issue, I did not have a copy of my 2005 tax return, so I did not know what form 8824 line 25 was.
The earliest return I had was 2008. I used the “Tax History” of the 2008 return and recreated my 2005 return. I added the asset deprecation values also from the 2008 return. This plus the best guess on the property I gave up in the 1031 exchange allowed me to recreate the form 8824 in 2005.
I now had the adjusted cost basis for the property received in the 1031. I used county tax records to calculate the % of the total cost basis that was the land value.
I sold the properties in 2021.
I created a 2021 tax return using the proper cost basis. This resulted in a excess depreciation reported to the IRS of over $129000, also a schedule D and a unrecaptured 1250 gain was produced.
I then created a 2021 tax return using the bad cost basis. This also resulted in a schedule D and a unrecaptured 1250 gain to be produced, but of a much higher number.
The refund in both returns were basically similar.
Do I need to do form 3115 with a method change in the good return, because of the excess deprecation or does the unrecaptured 1250 gain take care of the problem?
Thanks
