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Taxd78
Level 2

Can I correct the cost basis and also have the accounting method changed at the same time?

I put my house as a rental around mid 2016. In my 2016 returns (filed with turbo tax) I took the depreciation but the cost basis was incorrect. I stopped using depreciation since 2016 (mostly because I did my taxes and also didn’t understand it much). Can I change the cost basis this year? Also from reading on the forums I believe I will need to file a change in accounting using form 3115. Can I do both on the same return? 

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Accepted Solutions
tagteam
Level 15

Can I correct the cost basis and also have the accounting method changed at the same time?


@Taxd78 wrote:

...By filing 3115 and correcting the cost basis on my return for this year, can I claim the deductions that I missed on all the previous years that I did not claim it?


Yes, you make what is called a 481(a) adjustment for the foregone depreciation.

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5 Replies
tagteam
Level 15

Can I correct the cost basis and also have the accounting method changed at the same time?


@Taxd78 wrote:

....Can I do both on the same return? 


You are going to need professional assistance for your issue.

 

If you did not take a depreciation deduction starting in 2016 and continuing through the 2020 tax year, then you will have to file Form 3115 to catch up. The correct cost basis will be applied in the process.

Taxd78
Level 2

Can I correct the cost basis and also have the accounting method changed at the same time?

Thanks @tagteam . I will be using a professional from this year onwards (made the mistake not to do so in the previous years 🙂 ).  Just curious, do I have to amend the previous years if I get the cost basis and accounting method corrected in the 2020 return (I haven’t filed yet)?  The reason I ask is because my 2019 is being audited for some other aspect and I do not want to change anything till it closes out. 

tagteam
Level 15

Can I correct the cost basis and also have the accounting method changed at the same time?


@Taxd78 wrote:

.....do I have to amend the previous years if I get the cost basis and accounting method corrected in the 2020 return


You cannot amend a return to correct an impermissible method of accounting if you filed using that impermissible method for two consecutive tax years (which you apparently did). 

 

As a result, rather than amending you would file a 3115 with your 2020 federal income tax return.

Taxd78
Level 2

Can I correct the cost basis and also have the accounting method changed at the same time?

Thanks @tagteam. By filing 3115 and correcting the cost basis on my return for this year, can I claim the deductions that I missed on all the previous years that I did not claim it?

tagteam
Level 15

Can I correct the cost basis and also have the accounting method changed at the same time?


@Taxd78 wrote:

...By filing 3115 and correcting the cost basis on my return for this year, can I claim the deductions that I missed on all the previous years that I did not claim it?


Yes, you make what is called a 481(a) adjustment for the foregone depreciation.

View solution in original post

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