I was told recently that at the time of sale, the IRS will "assume" that depreciation was in fact taken since purchase at the specified rate (27.5 years, straight line for residential). Is that true?
Yes, that is one hundred percent true. What happens is, in the year you sell the amount of depreciation you "should" have taken will be added to your gain on the sales price, thus increasing your AGI for that tax year and potentially bumping you up into a higher tax bracket.
how can I capture depreciation not taken in the past?
Since it's been more than 3 years back that you have not taken depreciation, you really have no choice but to file the 3115-Change in Accounting Method form with the IRS in order to "fix this". I would suggest you not bother with amending prior year returns at this point, because it is a *LOT* more work and will require *YOU* to manually calculate and carry forward *ALL* carry forwards (which I guarantee you 100% you have carry forward losses every single year on each individual rental property). So trying to amend back to 2012 is to risky, (espeically with multiple properties) because just one teeny-tiny mistake on your part gets exponentially larger with each passing year and will literally blow up in your face financially in the year you sell one or more of the properties.
If I amend previous returns, can I submit all amended returns (i.e. for multiple years) together,
Nope. Each amended tax return has to be mailed to the IRS in it's own separate envelope. If your state also taxes personal income that just doubled the work you have to do, and doubled the probability of one of those "teeny-tiny mistakes" I referred to earlier. The issues with amending back to 2012 are multiple
- You can not import from a prior year's return during the amending process. This will bite you hard when you get to the 2013 and beyond return, becuase "you" would have to manually figure all the carry forwards and manually enter them "in the right place" (good luck with that) in the program.
- You can not use the TurboTax software to amend any return (state or federal) prior to the 2016 tax return. That's because the "required" corrections and updates for the program are only available for the current tax filing year (2019 right now) and three years back. So if you try and use TurboTax 2012 to amend your 2012 return, you most certainly can do that. But the return *WILL* *BE* *WRONG*.
- TurboTax does not honor their 100% accuracy guarantee for more than three years back.
- You can not e-file an amended return for "any" year. The IRS says so - not TurboTax. You have to print, sign and mail it along with all supporting documents such as W-2's, 1099-MISC's, 1098's, etc.
- An amended return can take anywhere from 8-16 weeks to process, since those are done by hand. Additionally, submitting amended returns for multiple years can cause problems for you,. because the IRS may not process those returns in year order. That means you'd risk getting letters from the IRS about "mistakes" on your amended 2013 return, becuase carry overs (for example) don't agree with your 2012 return for which the amended 2012 return hasn't been processed yet.
In other words, *don't* *open* *that* *can* *of* *worms* or you may find it to actually be a barrel of copperheads, rattle snakes and boa constrictors that will squeeze your wallet dry. 🙂
fill form 3115
That's the only way at this point to reduce the possibility of a financial drowning. But understand this - the 3115 is not a simple as you mean think. It is in fact, *very* complicated. Especially in your case since you have multiple properties. You'll most likely figure that out if you attempt to fill out Part I, because the most common question is, "What's a DCN?" So I highly recommend you seek professional help this year for your 2019 taxes with the 3115.
