Depreciation on overseas rental

[goyal_raj]

I have rental property overseas and since I was not in the US I did not claim depreciation on it till now. Do I depreciate it now over the next 40 years or do I assume that depreciation was claimed and therefore only the remaining? This way I would have to pay more taxes on selling even though I had no control over previous years' depreciation. Or is the depreciation claimed from the date the property was put on rental?

where do I add the travel expenses (out of town) to maintain the property?

[KristinaK]

Assuming your were filing resident tax return in prior years, depreciation on the rental property starts from the date it was placed in service (was available for rent). If you were not filing resident returns in prior year, then the depreciation starts from the date you were required to report your worldwide income because you became a resident. If you could and did not previously claim depreciation on your rental property, you have three options:

1) Start depreciation from the current year. After entering all the information in the Asset/Depreciation section, TurboTax will determine what the prior year depreciation was supposed to be. And yes, you are correct in saying that when you sell the property, you will have to account for depreciation to calculate your gain, even if depreciation was not actually taken on prior year tax returns. The IRS states that it is allowed or allowable depreciation that is taken into consideration when figuring out the basis of sold rental property.

2) Amend 2012-2014 tax returns and at least pick up the depreciation for those years. If property was in service prior to 2012, you will "lose" depreciation for those prior years and above (in #1) will still be valid.

3) You can file Form 3115 and claim all depreciation in current year. TurboTax does not support this form and you will probably need professional help with it since it's quite a complex form.

Travel expenses can be reported in the same section as your rental income and expenses. 

[goyal_raj]

Thanks for your reply. Is there anything for someone who has arrived in the US only recently and therefore can not back file? 3115 form seems to be too complex and pertains to the change in accounting method.

[goyal_raj]

and what proof do I need to select the year that it was put into service

[KristinaK]

If you are filing as a resident (Form 1040, not 1040NR), and that is your first year to file this form, your depreciation will start from the date you became a resident and was required to declare your worldwide income.

[goyal_raj]

Thanks. Can I also claim any rental income losses from previous years i.e. the losses that were not offset against income because I had not entered the US and did not file any tax returns here. This will help me to lower my tax burden on sale. I noticed that there is something called a s carryover of losses which can probably be used. I used to live in another country while I had property in a third country.

[KristinaK]

No, that will not work. I wish 🙂 Since you were not required to report income for prior years, you can't claim expenses either. The carryover of losses is for losses that you had and reported on your prior year tax returns that were for some reason disallowed. But the losses must have been reported on a US tax return in the prior years. Which doesn't sound like that is the case for you.