DavidD66
Expert Alumni

Investors & landlords

The only way to correct the omission of your improvements and add them to you cost basis, is to file Form 3115 - Application for Change in Accounting Method.  I suggest you file an amended return for 2019 with Form 3115, to add the improvements as assets, and take all the prior year depreciation you were entitled to for those assets.  After filing  the 2019 amended return, you will the correct amount of cost basis and depreciation with which to calculate the gain on the sale of your rental.

 

If you don't retroactively add the assets and take the prior years' depreciation, you will not only have a lower cost basis than what it should be, you will also have to calculate depreciation recapture tax on the depreciation you were "entitled to" but did not take.

 

TurboTax does not support Form 3115, so I suggest you seek out the services of a local CPA or EA in your area to help you with the amended return.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"