Another how do I add improvements and settlement charges that should have been added when converted to the cost basis of my rental property that has been sold

[larisabrisson]

The accountant who converted primary property to rental never asked me if I had made any capital improvements or paid in settlement charges when I purchased the home. Of course, now I have sold it and see that these were important questions to have asked me. Grrrrrr

I understand there is a long complicated 3115 form but is it acceptable to just add the improvement and settlement costs now as a 27.5 year depreciable asset that was put into service when I began the rental and then recapture all of the depreciation for these costs on this year’s taxes. I understand that I did not get the “benefit” of the depreciation expenses as I should have but this will help me show a loss on the house.

Is this an acceptable alternative to the 3115 form or a big no – no??  

[MichaelL1 · Accepted solution]

I would add the cost of the improvements that were overlooked to the deprecation schedule.  Yes you would have to compute that depreciation was taken as IRS uses the rule that it was allowed or allowable in computing the gain or loss on the disposition.  

The 3315 is a change in Accounting method.  You are not really changing the method used, as your total cost was not accurately computed. You had the right method, just some costs overlooked.  

Another thing to consider is the 2013, 2014 and 2015 returns can all be amended yet.  2013 was due 4-15-2014 so statue of limitations date is 4-15-2017.  If you amend the three years and then do the 2016 return, you would have the correct depreciation deduction for those prior years.  It was take some more time on your behalf, but if prior years were completed in TurboTax it isn't that difficult.  

[larisabrisson]

Many thank yous Michael for confirming it is OK to use this method!  Unfortunately, last year an accountant did my taxes so amending the tax returns would be painful. At least with this method I can show that I did sell my rental at a loss and not pay additional taxes on the sale.

Could you by chance help me understand how to dispose of the car I used with the rental property as I can't find any previous questions. If I enter in that I put the car back into personal use on the day I sold the rental property Turbo Tax is saying that I will have to "report some recapture"  It directs me to go to Sale of Business Property.  Is this what I should do?  I still use the car with my consulting Schedule C business. Thank you again!

[MichaelL1]

If the car is now used on the Sch C business (virus the rental) don't show it in TurboTax.  It will want you to recapture as you are saying, and there would be no recapture as it is going from one business (rental to Sch C) which there would be no tax impact.

[larisabrisson]

I did use the car in 2016 to drive to and from my out of state rental to get it ready for sale. Should I just add up the mileage and put it under Travel Expense? Otherwise I have to add in Vehicle Expenses and show that I used the car or do I just not say it was disposed in 2016?  I have a form 4562 that won't go away even if I don't say the car was disposed in 2016 if I enter miles in as Vehicle Expenses.

[MichaelL1]

It may be easier to say it still used for business (as it is just the Sch C business).  See if this corrects your situation as you would now claim the mileage and say you still have the vehicle used for business.

[larisabrisson]

No, keeping the vehicle in service won't make form 4562 go away with Line 12 wanting information. I can delete form 4562 when I delete the vehicle expense entry. Maybe TT is taking into account the rental property asset has been disposed of?? Oh, well - I am just going to add to Travel Expense and hope for the best.  I do have one last question that perhaps you want to also help with me as you are truly the best person in the world today!!

I have $2219 in depreciation that I claimed as a home office deduction from before the house was converted to a rental (converted in 2011) that I need to recapture. I cannot find instructions anywhere on how to add this depreciation to taxes.  Can I just manually add it to the depreciation calculated on the rental bldg?  AMT depreciation doesn't really like this method though.  Should I do something else?

[MichaelL1]

Delete the Form 4562, you can manually add the deprecation for the office in the home back in.

[larisabrisson]

Can't thank you enough MichaelL1!  Happy Tax Season!