You are correct that you began depreciating your home as a new rental in 2021 and should not have entered the original date it was first used as a rental. To correct this, you will need to amend your 2021 return and fix the in-service date for the property. This will recalculate the depreciation beginning on the 2021 date.
Also, you probably reported an incorrect basis for depreciation. Both the in-service date and basis are reset when you converted the property back from personal to rental use.
According to IRS Pub 551 Property Changed to Business or Rental Use:
If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. An example of changing property held for personal use to business use would be renting out your former main home.
The basis for depreciation is the lesser of the following amounts.
- The FMV of the property on the date of the change, or
- Your adjusted basis on the date of the change.
The best source for the Fair Market Value (FMV) on the date of the change would be a local real estate agent who can provide comparable sales. This is good evidence for the value of your home on that date.
Your adjusted basis is the original purchase price plus any improvements (upgrades or additions) that you have made, less the accumulated depreciation taken on the property if it was previously used as a rental. Historical property tax records may provide the price you paid for the home. Improvement costs and accumulated depreciation would come from your personal financial records.
In most cases, your adjusted basis would be less than the FMV, so that is the basis you would use for your converted rental property.
Your best option is to request an extension of time to file your 2022 tax return. This will allow you to prepare and file an amended 2021 return so you have the correct information to enter for 2022. As a final note, the amended return is a correction to the depreciation you reported. It is not a change in accounting/depreciation method.
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