Amend 2022 Depreciation Amount

[slcdawg]

A Tax Prep service did my 2022 taxes and calculated the depreciation incorrectly.   My former accountant is saying an amended return is not needed and they can make the correction in our 2023 taxes.

However, I would like to switch to TurboTax for 2023 taxes.  I know the correct depreciation amount for 2022.  Can I make this correction for 2022 in TurboTax?  I think I need to file a form 3115 with the 2023 return.  If so, can I do this through TurboTax or should I use an accountant?

[KrisD15]

Yes, this can be done using TurboTax however you would need to use the DESKTOP version. 

HERE are the steps to generate Form 3115 in TurboTax Desktop

[slcdawg]

Thank you.  I do have the desktop version but wondering how complicated form 3115 is and if I should attempt this myself? 

[JamesG1]

IRS form 3115 Application for change in accounting method can be daunting.  Follow the directions outlined by @KrisD15 above. 

Per IRS form 3115 Instructions, page 1:

You must file under the automatic change procedures if you are eligible to request consent to make an accounting method change under the automatic change procedures for the requested year of change.

Revenue Procedure 2022-14 is found here.

[AmeliesUncle]

How exactly was it calculated incorrectly?  That could possibly dictate how it needs to be corrected.

Was 2022 the first year of the error?  When was the property "placed in service"?

[slcdawg]

The property was placed in service in June 2018.  The error was in the depreciation amount for 2022 only.  The error was the preparer incorrectly entered the fair rental days on the market.  This resulted in the depreciation amount being about 25% of what it should have been.

[AmeliesUncle]

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@slcdawg wrote:

The error was the preparer incorrectly entered the fair rental days on the market.  This resulted in the depreciation amount being about 25% of what it should have been.

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Did you also use it for personal use?  

If there was no personal use, the number of days entered would not change anything.  If there was personal use, it should show the number of days it was ACTUALLY rented, not the number of days it was merely available for rent.

*IF* there is an error, you need to amend 2022 to correct it (Form 1040-X).  Form 3115 does not apply.

[slcdawg]

Yes, there was personal use.  Are you saying that Fair Rental Days is the number of "days rented" and not the "days available to rent"?

I'm seeing conflicting info online and my accountant is using Fair Rental Days = Days Available to Rent.  Not sure if this is correct.  I appreciate your help and trying to understand this better.  Thank you!

I

[AmeliesUncle]

Yes, it is days actually rented (not days available for rent).

That is for line 2 of Schedule E, and the Instructions say "report the number of days in the year each property was rented at fair rental value".

If there is no personal use, it is fairly common to just enter 365 rental days even if there was some vacancies because the days really doesn't matter when there is no personal use.  It is technically incorrect to do that, but because it doesn't affect anything, there is no harm done for doing that. 

If your accountant has been using the days AVAILABLE to rent when you also used the property for personal use, you have the opposite problem of what you had thought.  You have been claiming TOO MUCH expenses and too much depreciation for those years.

[slcdawg]

Unfortunately, my accountant has been calculating based on Available days to rent for 4-5 years.  Is this something I can fix in TT or better to have an accountant resolve it?

[AmeliesUncle]

You could correct it using the CD/downloaded versions of the prior years.  But you would need to recreate the original return, then amend it to make the correction.  It could be quite a bit of work.

You could also hire a tax professional to correct it.  But unless you used your original tax preparer, it would be a lot of work and end up being rather expensive.

This is NOT the correct way to do it, but it is common for people who have mistakes on their prior tax returns to just ignore the prior errors and start doing it correctly from now on.  But *IF* you were to do that, you would need to ensure that *IF* there are any carryovers from the prior year, you use the 'correct' carryover as if the prior returns were prepared correctly.  If you were to continue to use incorrect carryovers, you would be continuing to file incorrect tax returns, which is a bad idea.

[slcdawg]

I have confirmed my tax preparer calculated depreciation incorrectly.  On Schedule E Line 2, they used Days "Available" to rent when they should have used Days "Rented" for the Fair Rental Days.  Thank you for pointing that out.

My tax preparer says this can be resolved by adjusting the passive loss suspended carryover rather than file an amended return.  We are not allowed a rental loss due to income limitations.  

Is this possible for me to do myself in TT?  Or, should I work with a (different) tax professional?  

[ee-ea]

@slcdawg 

You paid your pro for a correct return.   After April 15 go back to the pro to get what you paid for.

[slcdawg]

To clarify, the mistakes were made on prior returns.  I would like to do 2023 myself in TT.

Or, should I ask the "pro" to file an amendment for 2022?

[KrisD15]

The general consensus is to amend the prior returns.

To continue in TurboTax, you would need to enter the rental basis and "Proper" prior depreciation. 

• Income
• Rental Properties and Royalties

You would also need to enter the "Proper" amount of Carryover

On the "Do Any of These Situations Apply to This Property"

Select "I have passive activity real estate losses carried over from a prior year" and enter the corrected amount. 

HERE is a discussion on Form 3115