Can I amend returns going back several years to report on rental income AND associated deductions?

[birdieblue]

I have co-owned a small rental property with others for 10 years.  I have never reported anything about it on my tax returns, thinking that it just generated losses anyway (mortgage interest + taxes + condo assn fees + depreciation have always exceeded the rental income). I'm now realizing I should have reported--that when we ultimately sell, I'll have to reduce the basis by the depreciation anyway, so I may as well have been accumulating the passive activity losses to offset the gain.  I will at least start reporting this year (and figure depreciation based on an in-service date of 10 years ago).  Question is: how far back should amend?  And,if I amend for years in which I filed more than 3 years ago, may I only report the rental income, or will I also be able to report the mortgage interest, property taxes, condo fees and depreciation? If I report all the deductions, would the resulting losses (and there would be losses each year) be able to be carried forward?

[DavidD66]

Instead of filing amended returns for 10 years, I recommend you amend 2021 and file Form 3115 - Application for Change in Accounting Method.  Take all the depreciation and back expenses in a single year.  TurboTax does not support Form 3115, so you want be able to use TurboTax to file Form 3115.  I strongly recommend you have a local tax professional with experience filing Form 3115 for rental property.  

[birdieblue]

Thank you for the response. Form 3115 does make sense for the depreciation. But, won’t I have to amend previous returns to take into account the rental income? I will look into hiring an accountant. 

[DianeW777]

The Internal Revenue Service limits the amount of time you have to file a 1040-X to the later of three years from the date you file the original tax return, or two years from the time you pay the tax for that year.  There is a statue of limitations when a tax return has already been filed with the IRS.

• IRS Presentation on Statute of Limitations

I would advise the same as @DavidD66 in regards to filing Form 3115 and using a tax professional to assist with your situation.  Going forward, after amending 2021, you should be fine handling it on your own.

@birdieblue 

[Carl]

Hopefully, you have all your paperwork for however many years back you didn't report the rental income/expenses/depreciation. Overall, you need a tax professional. Mainly because you didn't take depreciation for 2 or more consecutive years. With that, the only option is the 3115-Change in Accounting Method. A tax pro may be able to help with claiming your Passive Activity Carryover Losses, which along with depreciation, come into play in the tax year you sell.

[oreoshark1]

Hi - I don't think the comment about statute of limitations is correct.  I see that you can electronically file an amended return for the previous 3 years, but beyond that, you need to file a paper amended return. From the IRS Amended Return FAQs:  

Can I file my amended return electronically? (updated January 5, 2024)

Yes. If you need to amend your Form 1040, 1040-SR, 1040-NR, or 1040-SS/PR for the current or two prior tax periods, you can amend these forms electronically using available tax software products. 

What are some reasons that an amended return cannot be filed electronically? (updated January 5, 2024)

Amended returns must be filed by paper for the following reasons:

1. Any amended Form 1040, 1040-SR, 1040-NR or 1040-SS/PR returns older than the current or prior two tax periods cannot be amended electronically. Amended returns for those earlier tax years must be filed by paper.
2. If amending a prior year return originally filed on paper during the current processing year, then the amended return must also be filed on paper.

See https://www.irs.gov/filing/amended-return-frequently-asked-questions

Also, Turbotax doesn't support beyond 3 previous versions of TT.

[MarilynG1]

You must file Form 1040-X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.

Also, amended returns (even current ones) may not always be filed electronically.  Sometimes they reject and must be mailed in.

This is from IRS Topic 308, Amended Returns.

If you're in the situation of unclaimed rental depreciation over more than two years, it is best to have a tax expert help you file Form 3115. 

TurboTax has both Live Experts and Verified Tax Pros that can help.

@oreoshark1