do not know what to do at this point. Should I start claiming depreciation with this year or back up the three years and refile? I asked for a tax extension and it is due tomorrow. I want to maximize what I can get back.
Don't walk. RUN! To a tax professional in your local area to get this fixed. As for "getting back" anything, you can probably forget about that. Especially if your state taxes personal income, as you're going to have a double whammy if that's the case.
A tax professional is your best bet, as depending on your specific circumstances they can most likely reduce any back taxes, fines and penalties that may be imposed. With 20 years of depreciation missed on two properties, you're talking thousands of dollars here that you did not deduct in the past as required. The possible costs to fix this on the tax front will make the cost of professional help seem like a pittance in comparison most likely. So you may want to consider ignoring the extended filing deadline for now and just seek professional help come Monday morning.
Seeing that it appears you've been talking with a realtor, I get the impression you may be looking to sell the properties. A tax pro may help you determine that it's just best to continue on as you have been, and take the hit when you sell the properties.
When you sell a rental property you are required to recapture and pay taxes on all depreciation taken, or in your case, recapture and pay taxes on the depreciation you "should" have taken. Recaptured depreciation is taxed at the ordinary income tax rate up to a maximum of 25%, while any capital gain realized on the sale is taxed at the capital gains tax rate.
