Accumulated (prior depreciation) on TT is incorrect - does it matter?

[booboo2]

Hello,

I recently tracked our accumulated depreciation on a rental property on Excel and the one given by TT each year, is incorrect.  Probably due to the questions being ambiguous/unclear about an asset reaching the end of it's life and then I don't list it as an asset in the following year.  I am selling the rental property this Spring.  An accountant will figure out the capital gains for me in 2023.  Do I need to consider amending 2019-2021 for incorrect depreciation expenses (I actually claimed $300 ess than I could have due to TT errors)?   The prior year depreciation amounts have been incorrect for 2019-2022, but the depreciation expense is only off by -$300.  

[MaryK4]

Usually if you discover an error in depreciation in the year of disposal, you use the Change in Accounting method described in What should I do if I didn’t take depreciation on my rental property?  

[booboo2]

The article referenced doesn't address my situation.

a) I didn't have a change in accounting method.

b) I am not going to file amended tax returns for such a small amount.  I made minor math error mistakes in claiming depreciation that actually I claimed $1450 less than should have over a 10 year holding period.  I will assume that the total accumulated depreciation actually used on my tax returns is what I am going to use for the disposal of the asset; capital gains calculations.  An accountant will handle. 

But do I need to do anything with the 2022 TT return, other than claim the appropriate (correctly calculated) depreciation?   

[Vanessa A]

For 2022, no, there is nothing you need to do other than use the correct amount of depreciation.

But, to answer your original question, yes, technically, you should amend your return for 2019 to 2022, if the depreciation truly is $1,450 total less than you took, then you overpaid taxes each year.  When you sell your rental property, you will need to recapture all the depreciation you took or were allowed to take on the property.  When you recapture depreciation, it is added back to your income in the year you sell and taxed at your ordinary tax rate.  So, basically, you will be paying taxes a second time on that $1,450. 

Since you are having an accountant handle the sale, I would suggest just filing your 2022 taxes with the correct depreciation amounts and then explaining everything to the accountant, let him recalculate to see if there actually was an error. If so, he can help you determine whether or not it is worth amending your prior year returns. 

For a residential rental property, depreciation is 27.5 years.  

[akphoneguy]

I believe that that recaptured depreciation is taxed at 25%.  I don't think that is impacted by the tax rate for the rest of your income.  Whereas if there is a long term capital gain with the sale (original basis + improvements - depreciation taken) that long term gain will be taxed at long term capital gains rate - which is relative to the amount of your taxable income.