Can I submit a Form 3115 if I sold my rental home in the same year?

[lynntaxes09]

We discovered that TurboTax Premier failed to include depreciation of our rental home (rented since 2015) in 2021 and 2022 tax years. We sold the rental house in 2023 and discovered the mistakes while preparing our tax forms this year. We plan to submit Form 3115 to recapture the missed depreciation, but as I read the Instructions for Form 3115, it appears the IRS may not accept a change in accounting methods if submitted the same year we sold our house. Here is what I read: "Ordinarily, the IRS will not consent to a request for an accounting method change when an applicant ceases to engage in the trade or business or terminates its existence."

Please help us determine the best path forward. TIA

[tagteam]

Here ya go (same question):

https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=13034

[lynntaxes09]

I used your link and read the post, but it was from 2018 referencing 2015 rev. procedures. Does the old guidance still apply? I have been trying to read through 2022-14. Is that an update to the referenced 2015 rev. procedures?

[tagteam]

In short, you can use the 481(a) catch up procedure for depreciation in the year of the sale.

[AmeliesUncle]

If you took depreciation in 2015, then you don't use Form 3115 to claim the missed depreciation in 2021 and 2022.

You need to amend those two years to claim that depreciation.  Form 3115 does not apply.

[tagteam]

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@AmeliesUncle wrote:

You need to amend those two years to claim that depreciation.  Form 3115 does not apply.

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I missed that part (I believe). 

@AmeliesUncle is correct, @lynntaxes09; if you failed to include your depreciation deductions for two tax years but started depreciation deductions correctly at the outset, then you can simply amend. I, somehow, interpreted your original post to mean that you had not take any depreciation deductions since you started renting.

[lynntaxes09]

We did depreciate the house when put in service in 2015, but TurboTax Premier quit using it out for no known reason for the past two years (2021 and 2022). I have read multiple posts where people have been advised that 3115 is the only option for cases like mine. I guess you're saying they're wrong. That's good news for us! I tried reading the eligibility waivers, but couldn't make them out clearly. Would you mind dumbing them down for me to help me identify the specifics that allow me to amend vs. submitting form 3115? TIA

[DavidD66]

You can either file amended returns for 2021 and 2022, or you can file Form 3115 with your 2023 return.  I recommend you file amended returns for 2021 & 2022.  I would not file your 2023 tax return until you have heard from the IRS as to whether or not your changes were approved.  File an extension if necessary (but be sure to pay any tax due by April 15).  If they are not approved (which I think is unlikely) then you can file Form 3115 with your 2023 return.