@kesnerb wrote:Form 3115 says it is used to fill out 481(a). I'm not sure what a 481(a) is, still looking for it.
The CPA should have helped you with that in the process of preparing Form 3115; the 481(a) adjustment is part of the form (Part IV can be used for "catch up depreciation").
When you are ready to sell your property, you will be subject to depreciation recapture on all the depreciation you were eligible to take (whether you took the deduction or not) and may have to pay tax on some or all of it.
Because you have not taken depreciation in the past, considering amending your prior year's returns and take the appropriate depreciation expense. Losses are not necessarily a concern on rentals (due to depreciation) and it is quite common in the early years of operation.
https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed
Thank you for quick response. Does Form 3115 only cover for previous year's missing depreciation? I don't quite understand this form. Also, if file form 3115, may I still start claiming rental property depreciation on my 2016 tax return and continue claiming in the future ? My property was put in rental service in Oct 20, 2010, so I missed quite few years of depreciation.
Yes, you should start claiming depreciation ASAP. You can file amended returns and take depreciation, but you can only go back to 2015 (which would have to be mailed on or before April 18. The 3115 would allow you take the depreciation you didn't take in the current year. It's not the easiest form to complete - you might want to seek some help with it. Also, I recommend you use TurboTax desktop so you can access the Forms mode to make sure you get your property set up and depreciation calculating properly. You can switch from Online to Desktop and you won't lose any work you've already done this year. To do so, see the following FAQ: <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/replies/3302260">https://ttlc.intuit.com/replies/3302260</a>
Am I allowed to do an amended return when filing the 3115? I already sent in my 2017 return. Also, where exactly in my amended return do I put the depreciation expense amount for all the years I never claimed?
I did not claim any depreciation on my rental properties purchased in 2014, 2015, 2016 and 2017. My returns were filed online through turbo tax. Can I amend my returns online using turbo tax going back to tax year 2014 and submit the amendment online through turbo tax to the IRS?
Not online. And you have to print and mail amended returns
some of the instructions show the wrong year as they change over to 2019. They are being updated.
@JustMe1909 wrote:
I did not claim any depreciation on my rental properties purchased in 2014, 2015, 2016 and 2017. My returns were filed online through turbo tax. Can I amend my returns online using turbo tax going back to tax year 2014 and submit the amendment online through turbo tax to the IRS?
Not only can you not amend online, you simply cannot amend, period. Rather, you must file Form 3115 (and make an adjustment) since, by not deducting any depreciation, you used an impermissible method of accounting.
Unfortunately, preparing Form 3115 is not really a DIY-type endeavor; you will probably need professional tax preparation, or at least guidance from a professional. Regardless, you should rectify this situation as soon as practicable.
See https://www.irs.gov/instructions/i3115#idm140516453720416
@NGJ @Mike7300 and @JustMe this thread has become confusing because there are two many people participating in it and no two of you have the *EXACT* same scenario. So here's the scoop to cover it for all three of you.
As of today's date (Dec 5, 2019) if you placed your rental property "in service" in tax year 2016, 17 or 18 then you *NEED* to go back and amend those returns starting with the oldest return first, to take that depreciation. You *MUST* do your amending in tax year order, oldest first. Otherwise, there is a ONE HUNDRED PERCENT chance things *WILL* be wrong with depreciation and you'll find yourself in the tax hell of a never ending nightmare with the IRS from which you will never awaken. Don't even "think" about starting your 2019 return until you have done this, or your 2019 return *will* be wrong too. I guarantee it, 100%.
When you start the amending process, each of you start your *OWN* thread if you need help and make absolutely certain that you indicate in your post what tax year you are working on. Tax laws for rental property have changed *DRAMATICALLY* from 2017 to 2018 and if you don't specify the specific tax year you are working on you *WILL* be given wrong information and that will be start of your IRS never ending nightmare.
For those of you who placed your rental property in service in tax year 2015 or before, you can NOT amend tax year 2015 or before. You *NEED* professional help. Period. You *MUST* file the IRS Form 3115 - Change in Accounting Method, with "at least" a 2016 amended return or newer. The form 3115 *IS* *COMPLICATED* and if you are not a trained tax professional you *WILL* do it wrong and start that "never ending nightmare" I keep mentioning, with the IRS. So go get professional help *RIGHT* *NOW* with this before the tax filing season starts next month and all the CPA's, EA's and other tax professionals are all booked up.
@Carl wrote:
@NGJ @Mike7300 and @JustMe this thread has become confusing because there are two many people participating in it and no two of you have the *EXACT* same scenario.
@NGJ @Mike7300 @JustMe1909 Please read the following carefully - you cannot amend:
Adoption of accounting method defined.
Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns.
See https://www.irs.gov/publications/p946#en_US_2018_publink1000107385
Therefore, if you used an impermissible method of accounting (i.e., did not take depreciation deductions) in at least two taxable years immediately preceding the year of change, you need to file Form 3115; you cannot amend previous returns.
I agree with @Anonymous_ in that amending for the original OP (original poster) is not permissible. The reason for this is that the tax code states that if you have filed a tax return for two or more years, you have established a method of accounting. Doesn't matter whether the method is right or wrong, a method has been established.
The only way to correct this is to file a form 3115 as has been discussed. This would include ALL years. You can't file a form 3115 for part and amend part. Just not the way it works.
So bottom line, if you have filed a tax return for more than one year (two years) and have not claimed depreciation, then you MUST file a form 3115 to change the method of accounting. The form 3115 will determine a 481(a) adjustment that will provide a catch-up on any missed depreciation.
As has been stated above, this is not an easy task and professional assistance is recommended.
Can I start claim depreciation this year without amending prior years and/or form 3115? Basically accepting the loss and move on start anew. I did not claim depreciation since my property started in service in 2014.
@leo07 That is not the recommended procedure. You will lose prior accumulated depreciation deductions and that total will be considered unrecaptured Section 1250 gain upon disposition.
You should have claimed depreciation on your rental property since putting it on the rental market. If you did not, when you sell your rental home, the IRS requires that you recapture all allowable depreciation to be taxed (i.e. including the depreciation you did not deduct).
So, if you did not depreciate in past years, you can still amend the last 3 years' tax returns (2018, 2017 and 2016) to claim that depreciation.
To amend your past returns, please read the instructions in this TurboTax Help article.
@MinhT1 wrote:So, if you did not depreciate in past years, you can still amend the last 3 years' tax returns (2018, 2017 and 2016) to claim that depreciation.
That is completely incorrect - @leo07 cannot simply amend the last three years' tax returns to claim the foregone depreciation deductions because @leo07 adopted an impermissible method of accounting on the first tax return and then used the same impermissible method in two (actually more than two) consecutively filed tax returns.
See https://www.irs.gov/publications/p946#en_US_2018_publink1000107385
Thank you. I guess my only option is filing a 3115 form with a CPA this year. I understand filling 3115 is not an easy DIY process, but do I need to dig past related-documents such as tax bill, lease agreements, past tax filing, etc.. for my CPA?
I suppose that is dependent upon your CPA, but you should not have to dig up tons of past documents.
Actually, although the form is rather complicated, all that is needed is to make the appropriate Section 481(a) adjustment to account for past foregone depreciation deductions.
Re a rental apt. I took building depreon ciation the first year (2003) I put my property in service, using Turbotax software. I never took depreciation after that. In the following years from 2003 to 2018, I was relaying the Turbotax program to complete the tax return, and somehow I missed that. How can I make correction and how many years I can go back?
Thank you
@diacri See https://www.irs.gov/publications/p946#en_US_2018_publink1000107385
You can make a Section 481(a) adjustment by filing Form 3115 to catch up on foregone depreciation, but you will most likely need professional guidance and/or professional tax preparation.
I have sold my home in 2019, and reported depreciation for that year. I also filled out a 3115 form with the help of an Intuit CPA to recapture depreciation (say X amt) I failed to take in previous years. This was a rental property. On the rental income walk through where they ask about the sale, do I specify X amt on previous years depreciation or leave it at 0. If I specify X then it taxes me on the previous years, even though I didn't take the depreciation.
Form 3115 says it is used to fill out 481(a). I'm not sure what a 481(a) is, still looking for it.
@kesnerb wrote:Form 3115 says it is used to fill out 481(a). I'm not sure what a 481(a) is, still looking for it.
The CPA should have helped you with that in the process of preparing Form 3115; the 481(a) adjustment is part of the form (Part IV can be used for "catch up depreciation").
I learned yesterday that Turbo Tax "Desktop software" failed to include my rental home's value depreciation for 2019. I will combing thru my last 9 years of returns to see if I have ever listed depreciation. Sold the property for a 25K loss (purchase / sold price) in 2020. Not real thrilled with Turbo Tax right now. Been a loyal TurboTax user for the last 18 years.
amended returns where a refund is due can only be filed for 2017 forward. correction of this depreciation error for 9 years, if needed, will require filing form 3115. I suggest you use a pro. it is in your best interest to file for this relief if needed. you may have taken no depreciation for 9 years but the IRS rules say when you sell depreciable property you must take into account the larger of depreciation allowed (might be 0 in your situation) or the amount that would have been allowed if depreciation was computed correctly. so the basis of your property for computing gain/loss would be reduced by 9 years of phantom depreciation.
Failure to include depreciation is a user entry error by virtue of not reading the screens in the rental entry section. Asset entry is part of the interview process if you follow the interview path step by step and don't skip sections. If you did miss 9 years of depreciation you really need to use a local professional to make the correction. If you still have the rental you can wait until you file the 2020 return to make this correction.