Can I reclaim missed depreciation on my rental property after it is sold?

[ioitang]

Hello,

We just sold our rental property in March 2023 and we realized that we haven't been depreciating the property since the time we rented it out in 2017.   I have a few questions and I hope your can help.  Many thanks in advance.

1.  Is it okay to reclaim the missed depreciation using form 3115 in our situation?  If so, must we submit the form in 2023?

2.  We are late in filing federal tax return for this year but expecting to file it in the next a couple of days.   Shall we use the form 3115 to reclaim depreciation from 2017 to 2022 (without claiming depreciation in our regular 2022 federal tax return), or use the 3115 form to reclaim depreciation from 2017 to 2021 and claim 2022 depreciation in our regular 2022 federal tax return?  

3.  Does a rental property normally get depreciated in the year in which it is sold?  We owned the property for a few months in 2023 before it was sold.

BR,

TV

[AmyC · Accepted solution]

1. Yes, it can be mailed in anytime.

2. File the 3115 for 2017-2021

3. No, all depreciation claimed or allowed is subtracted from the basis when sold.

[ioitang]

Hello AmyC,

Thanks for the quick turnaround.  I really appreciate it.  

Follow up question:  Can we snail mail the form 3115  for 2017-2021 and separately e-file our 2022 federal tax return, which is late (without filing extension)?  Or they need to be mailed together? 

BR,

TV 

[GeorgeM777]

To follow-up on the comments from @AmyC, Form 3115 does not have to be sent with your 2022 return.  Therefore, if you prefer, you can snail mail Form 3115 and e-file your 2022 return.  

@ioitang 

[ioitang]

@GeorgeM777 

Thanks for the follow up on that.  

We would like to do the similar depreciation reclaim for state (NJ resident).  What form should I use for our missed depreciation?  Thanks again.

BR,

Tang

[ThomasM125]

Once you enter the depreciation adjustment on your federal return, per form 3115, that adjustment will flow down to your state return, so there is not a special form you need to complete for the state return. @ioitang 

[ioitang]

Hi ThomasM123,

Thanks.  To clarify, are you referring to entering the depreciation adjustment, per form 3115, in my 2023 tax return next year, or in my 2022 federal tax return this year?

I am wrapping up my 2022 federal tax return as we speak and has already included the depreciation claim for tax year 2022.   As soon as I am done with that, I'll work on the form 3115, which will cover the missed appreciation from 2017 to 2021.  Thanks again for the help.

BR,

Tang