Recently sold properties in two states - when determining capital gain and depreciation recapture, discovered the same asset exists on asset/depreciation schedules in two states (the asset's cost basis was added to the property in the second state - the total cost basis in the second state now exceeds the 1099-S proceeds, suggesting a loss on sale, and that is incorrect . It is a sizeable asset and depreciation has been taken in both states for a number of years.
Having claimed the depreciation, I cant eliminate the asset as Depreciation Recapture is owed. Am considering the following:
1) Delete and re-enter (or adjust the existing record) details of the incorrect asset in the 2nd state. I would preserve all of the total depreciation taken on this asset, but the purchase price/cost basis of the asset would be reduced to match the total depreciation taken. Fully depreciated, depreciation expense would cease in subsequent (to be amended) open years.
a. Allocating $1 of sales price to this now fully depreciated asset would result in neglible/ no capital gain;
b. Depreciation Recapture would be calculated correctly on all past (incorrect) depreciation claimed.
2) Amend the open year Fed and 2nd state returns, eliminating the incorrect depreciation previously taken in those years. The first state return would probably have to be amended too due to changes resulting on 8582 (allocation of deductible losses, etc).
Altering the basis on the changed Depreciation/Asset schedule is odd, but gets to the correctly calculated amounts.
Is this okay? How would you handle differently? Details re suggested alternatives or implementation would be much appreciated!
