(1) Is there reputable online CPA service you would recommend?
Sorry, but no. You need to seek the services of a CPA local to your area so that you have someone whom you can hold morally responsible and fiscally accountable for doing it right.
(2) When you say form 3115 will be needed to get on the right track, does "the right track" provide an opportunity to recoup lost $ from past returns due to the mistake or just going to get things corrected moving forward? I'm just hoping for some level of encouraging news as this appears to be a costly mistake.
Probably not much if anything to recoup. Traditionally, residential rental property almost always operates at a loss on paper every year, at tax time. So there very will may be nothing to recoup immediately. You won't see any potential benifit until the tax year you sell or otherwise dispose of the property.
Per the IRS rules, you can only amend a return for the current tax filing year and three years back. While you can amend returns more than 3 years back, if doing so results in additional refund to you, you will not receive it. The IRS has a three-year statute of limitations on that.
Your issue is, in order to get the depreciation history right, along with the expense history, you've have to amend every single tax year starting with the 2010 tax return. That will be a real pain, not to mention expense, because you have to do all the carry forwards manually for each and every tax year you amend. Remember, when you amend a tax return you can not import from the prior year tax return. So the work required on your part would be quite a bit. One top of that, the IRS says that when you have used an incorrect accounting method for 2 or more consecutive years, amending is not an option. You have to file the 3115 to make things right. By hiring a CPA for this, they very well may find a number of loopholes that are benificial to you too.
But as it stands now, you've already got some work cut out for you. If the property has been incorrectly reported as 52% business use for the last 10 years, then that means only 52% of your rental expenses were claimed/allowed on the SCH E each of those years. So you're going to need to provide the CPA more than just the printouts of all those tax returns. You'll need to make sure you provide them the "entire" tax return for each year which includes all the worksheets. It's the worksheets that will have the actual amounts you entered, as the forms filed with the IRS only show the percentage of those actual amounts. Now if you've got PDFs of the past 10 years tax returns that have everything in them, that will save you quite a bit on ink and paper, as you can just provide copies of the PDF files to the CPA.
If you don't have copies of all those past year's returns in some form or another to provide to the CPA, then they're going to have their work cut out for them. They'll be able to do it. It's just a bit more work on their part is all.
