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I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim a deduction in my 2023 return?

I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim this deduction beginning with my 2023 return?
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I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim a deduction in my 2023 return?

You can ONLY fix it by filing Form 3115 (and I suggest a good tax professional for this year).

 

Because you did not claim depreciation for the first two years, that has set the "Accounting Method".  That means two things (1) you are not allowed to amend to claim depreciation; you must file Form 3115 in order to 'catch up' on the depreciation and (2) you can't start claiming depreciation now unless you file Form 3115.

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DianeW777
Employee Tax Expert

I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim a deduction in my 2023 return?

Yes and you should.  The 2020 tax return, for amending, is going to expire April 15, 2024 (or two years after the tax was paid, whichever is later).  You still have time to amend that tax return, as well as 2021 and 2022 to catch up those deductions.

 

Depreciation is allowed or allowable, in tax terms that means use it or lose it. First and foremost you need to make sure that 2023 is correct.  Keep in mind that and is always appreciable so for this reason it can never be depreciated. Be sure it is separated out correctly (you can use the city/county tax assessments or a method you believe is accurate).

 

Next, you have two choices for the prior depreciation you have not used.  The IRS tax law states allowed or allowable which simply put they considered it used or lost.  At the point of sale you will recapture any depreciation that was allowed or allowable.  It's a use it or lose it situation.

  1. Amend your 2020, 2021 and 2022 tax returns to accurately utilize the allowed depreciation for those years; OR
  2. You can use the following form to correct the depreciation for your rental property, take any amount not previously expensed on a prior return, as an expense on the current year tax return as 'Other Expenses'.

Form 3115 Instruction: By including this with the current year tax return, you can complete everything on the 2023 tax return.

  1. Adopt a change in accounting method: This option allows you to go back as far as you need. Make the adjustment on your current year tax return to expense the missing depreciation.(This can also be done next year if you prefer.)
    • Why am I adopting a change in accounting method? Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.
  2. You must use the TurboTax CD/Download version to complete this form. TurboTax does not help you with this form. And your return must be mailed because this form is not supported through e-file.

This must be completed and filed with the return on time.

 

You can change to TurboTax CD/Download if you choose.

Amended Returns:

For tax years 2022, 2021, or 2020 - How do I file my 2022, 2021 or 2020 Tax Return? 

 

To file a new prior-year return, you'll need to purchase and download that year's TurboTax software for PC or Mac, as TurboTax Online and the mobile app are only available for the current tax year. (Note: Returns for tax years 2019 and earlier are no longer eligible to be filed through TurboTax.)

Prior-year returns must be paper-filed, as e-filing is no longer available for them. We'll walk you through that process when you get to the File section in the software.

After installing the software, open it and follow the onscreen instructions to file your return.

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I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim a deduction in my 2023 return?

if you start in 2023 you'll be burned by the tax laws when you sell because you must reduce your tax basis thus increasing your taxable gain by the depreciation you should have taken in the years 2020-2022. also, this deduction you didn't take can be taxed at around 25% as section 1250 recapture. Of course you could always hire a tax pro to file form 3115 to correct for the missed depreciation but this is expensive. amend now while you still can. once a year is closed correction can only be done by filing form 3115.

 

 

I purchased a rental property in 2020 but I did not claim the depreciation deduction YET. Can I start to claim a deduction in my 2023 return?

You can ONLY fix it by filing Form 3115 (and I suggest a good tax professional for this year).

 

Because you did not claim depreciation for the first two years, that has set the "Accounting Method".  That means two things (1) you are not allowed to amend to claim depreciation; you must file Form 3115 in order to 'catch up' on the depreciation and (2) you can't start claiming depreciation now unless you file Form 3115.

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