depreciation not entered

[BTfromWA]

I made an ignorant mistake by not understanding depreciation.  Sold our rental house this year after 12 years.  I've never put in depreciation.  Now that we sold the house it's a little messy.  Is there a way to fix this?

[ColeenD3 · Accepted solution]

There is no way to amend that far back. You will need Form 3115.

Unfortunately the depreciation recapture is "allowed or allowable" meaning even if you never depreciated it, you would still have to recapture the depreciation. Depreciation taken would be on line 18 of Schedule E.

One solution is to elect an accounting method change and file a Form 3115 in the current year and take the  prior depreciation as a section 481(a) adjustment. [land  value is separated, land is not depreciated]

Below are the IRS links related to the change in accounting method. TurboTax does not have that form.

May be these will help

Form 3115, Application for Change in Accounting Method

Form 3115

Instructions for Form 3115 (03/2012) 

3115 Instructions

Form 3115,

Form 3115 (2)

[Carl]

The bottom line is, you need to seek professional help. The IRS Form 3115 is *NOT* simple by any stretch of the imagination. Add to that, if your state also taxes personal income, now you've got a double-whammy. Please seek professional help. The cost of professional help is going to seem like a pittance, when compared to the fines and penalties you *could* be assessed in this process. Besides, a tax professional will be better capable of keeping those fines and penalties to a minimum for you.