If I've had a residential rental property for the past 7 years but haven't claimed a depreciation expense my returns, how should I handle it? Thanks

[masca977]

From what i've read, I should not amend the past three returns, but use form 3115 to do a catch up on depreciation. Any help is appreciated. Thanks

[view2 · Accepted solution]

 Even if it was just a mistake, you would treat it as an accounting method change and file a Form 3115 in the current year and take the  depreciation as a section 481(a) adjustment. 

§481(a) Adjustment

The adjusted basis of the depreciable property is changed when the taxpayer changes from an impermissible method of depreciation to a permissible method. This change results in a 481(a)adjustment. The adjustment is usually taken into account over a four-year period, beginning in the year of change. However, if the entire §481(a) adjustment is less than $25,000, a de minimis rule permits taxpayers to take 100% of the amount into account in the year of change. A negative adjustment (in the taxpayer’s favor) can be taken in full in the year of change per Rev. Proc. 2002-19.

The §481(a) adjustment equals the difference between the total depreciation taken in prior years under the old method and the total depreciation allowable for those years under the new method. As of the beginning of the year of change, the basis of the depreciable property must reflect the §481(a) adjustment.

[masca977]

Thank you very much for a super fast response. I will have to read up on how to prepare this form. I don't believe it's a standard form on turbotax.

[view2]

Your welcome...Rather complicated and actually need a CPA.

Application for Change in Accounting Method

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i3115.pdf">https://www.irs.gov/pub/irs-pdf/i3115.pdf</a>

General Instructions

<a rel="nofollow" target="_blank" href="https://www.irs.gov/instructions/i3115/ch01.html">https://www.irs.gov/instructions/i3115/ch01.html</...>

[masca977]

Thanks again.

[view2]

Your welcome.

[masca977]

Sorry to bug you again, but since the filing date is fast approaching and I may not have the time or resources to complete form 3115, could I take the depreciation expense for tax year 2016 and submit my return before the tax deadline and then submit form 3115 at a later date? Thanks again.

[view2]

Except if instructed differently,
you must file Form 3115 under the automatic change procedures in duplicate as follows.
Attach the original  Form 3115 to the filer's timely filed  (including extensions) federal income tax return for the year of  change. The original Form 3115 attachment does not need to be
signed.
File a copy  of the  signed  Form 3115 to the address provided  in the address chart on this page, no earlier than the first day of  the year of change and no later than the date the original is filed  with the federal income tax return for the year of change. This  signed Form 3115 may be a photocopy. For more on the  signature requirement, see the  Name(s) and Signature(s)
section, later.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i3115.pdf">https://www.irs.gov/pub/irs-pdf/i3115.pdf</a>

File an Income Tax Extension

The standard six-month tax extension allows you to file your tax return after the usual deadline. However, it doesn't buy you more time to pay any taxes you may owe. That means that if you don’t pay your tax balance by the filing deadline (April 18 in 2017), you'll get hit with penalty and interest.

File a free federal tax extension

<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/irs-tax-extensions/">https://turbotax.intuit.com/irs-tax-extensions/</a>

[masca977]

Thank you very much. This really helps. Blessings.

[view2]

Your welcome, ........Thanks  appreciate that.

[acma168]

I have already filed 2017 return.  Should I amend it and attach form 3115 or should I wait until next year and attach form 3115 to my 2018 return?

[ikenacornett]

I have the same question. I sold the rental property in 2018 and it looks like this would disqualify me from the automatic change procedure. If I amend 2017 return to attach 3115 then I think it will be eligible for automatic change procedure. Then I can list prior years depreciation on the 2018 return for sale if business property.

[terrykcpa]

There have been many changes to this form. You should get the help of a CPA.

[tagteam]

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@terrykcpa wrote:

You must have a preparer other than the taxpayer sign it as well I believe.

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Form 3115? I do not believe that is correct.

See https://www.irs.gov/instructions/i3115#idm140516454058816

[pk]

this is the form -- .pdf 

https://www.irs.gov/pub/irs-pdf/f3115.pdf