Investors & landlords

The remodels should have been added to the cost of the property when it was placed in service for rental, not just your original cost to purchase the condo. 

• 'The tax law requires depreciation allowed or allowable which simply means use it or lose it.  It must be treated like you did take the required depreciation expense each year.' (from above)

If you did not add them to the original cost when you placed your condo in service for rental, then you will want to do the following:

1. Add the capital improvements as an asset using the original date placed in service for rental with the same recovery period which would be residential rental property (27.5 year). This will show all of the accumulated depreciation for all prior years and the current year.
2. Allocate your selling price and selling expenses accordingly as indicated above for each asset.  It is one condo with more than one asset at this point and it's normal to have a remodel listed as a separate asset.  It's important because of the steps to take advantage of the unused depreciation below.
3. Next, you can use the change in accounting method to deduct all prior depreciation on Schedule E for the remodels you never deducted. A onetime entry for the year of sale if you choose to follow the steps below to make the change.  Otherwise you lose all of the depreciation you never deducted and it becomes taxable gain anyway.

Form 3115 Instruction: By including this with the current year tax return, you can complete everything on the 2022 tax return.

1. Adopt a change in accounting method: This option allows you to go back as far as you need. Make the adjustment on your current year tax return to expense the missing depreciation. (Simply add a miscellaneous expense for this on your rental for 2022.
   • Why am I adopting a change in accounting method? Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.
2. You must use the TurboTax CD/Download version to complete this form. TurboTax does not help you with this form. And your return must be mailed because this form is not supported through e-file. 
   • How do I switch from TurboTax Online to TurboTax CD/Download?

This must be completed and filed with the return on time.  As far as the contribution of $600 it seems like it's a personal expense since it's unclear why the payment was required.

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