If I forgot to expense my depreciation from my rental property last year, can I add it to this years return, or do I have to do a tax amendment for 2016?

[golomb-andrew]

I began renting out my property in 2016 and did not realize I could expense my properties depreciation, which is a huge deduction.  I am wondering if I can deduct the 2016 portion and 2017 for this year's taxes, or if I have to file a tax amendment for 2016 to see these benefits. 

[KrisD]

No, you would need to amend 2016. Depreciation can only be claimed the year it incurs on the property. If you want to claim the depreciation for 2016, you would need to amend your 2016 return. Additionally, be aware that the IRS requires  you to recapture the depreciation when you sell the property, whether you actually took the depreciation or not. 

If you set the rental up in TurboTax last year, the program would have calculated the depreciation based on the value you gave to the building. (Land is never depreciated) The program then calculates the depreciation and enters in on the Schedule E. It is not an expense you need to enter yourself every year. 

Although depreciation is considered an operating expense, unlike an expense, depreciation lowers the value of the asset (building). When you sell the asset, you will need to subtract the depreciation taken from the basis of the property. 

CLICK HERE for TurboTax Tools and Tips about Amended Returns

[critsec]

See Form 3115. I believe you don't amend past returns, you file 3115 along with your current return.

[Carl]

The 3115 would be used only if you are past the 3-year statute of limitations. For 2016 you *might* be past that already. If so, then the 3115 is needed. Even though the 3115 is included in the TTX program understand that it is "NOT" simple by any stretch of the imagination and requires professional help. Try it yourself and screw it up, and you just compound your issues with the IRS making the cost of professional help seem like a pittance in comparison.

[tagteam]

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@Carl wrote:

The 3115 would be used only if you are past the 3-year statute of limitations. 

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Form 3115 would be used if the treatment of a material item is done in the same way on two or more consecutively filed federal income tax returns. 

See Rev. Proc. 2015-13

An example with respect to depreciation would be if the taxpayer filed a 2017 and 2018 federal income tax return without any allowance for depreciation. In that instance, a Form 3115 would be required; amending would not be allowed.

[jafladd]

In your comment you mention that Turbo Tax adds the depreciation for me. My Turbo Tax advisor, mentioned I may need a 3115 but I have been using Turbo Tax since then at least if not longer. I see the depreciation line on the schedule E and I don't have anything noted, is this something I had to decline. I'm a little confused.

[MarilynG1]

@jafladd No, you don't 'elect to decline' depreciation on your Rental Property.  When you first set up your rental in TurboTax and give info on cost, date started renting, ownership%, etc. the Rental Asset is created, and depreciation is automatically added for you each year.

Sounds like you have been doing this correctly. 

When you sell your Rental Property (or stop using it as a rental), you will need to recapture depreciation that is calculated (again, based on cost, date started renting), so if you weren't claiming the depreciation each year, the IRS will still treat it as though you had been and you would have missed getting that deduction each year.

Click this link for more info on Rental Property Depreciation.