Correcting Property Cost Base

[VolvicNaturelle]

We accidentally plugged in ~$4k less closing expenses (agency fees) when determining the cost base for a rental property. Last year was the first year filing in the US, via a CPA - we will no longer work with that person. 

Can somebody help me understand how to correct that? - Apologies, I struggled to follow the mostly more complex circumstances referred to in other posts. @Carl thoughts?

From what I understand, form 3115 does not apply. Would I send in a 1040-X+revised schedule E? Or can I just shift over to the correct depreciation amount while keeping track of the cumulative? Would TT support this correctly - have found there are some rigidities?

On another note: Is it required/advisable to change anything? -- I would just let it go (~4k over that period seems negligible), but unsure since the number plugged in was simply wrong, I only have paperwork to back up the correct larger number.

Thank you so much

[Mike9241]

if you desire to change it without the need to file a 3115 you would have to file a 1040-X+revised schedule E for 2022. you just cannot correct in 2023 besides being improper you could mess up Turbotax.  Another issue is when you sell. You must recapture the larger of depreciation allowed (actually took) or allowable (should have taken). In your situation, you would have to recapture that hypothetical depreciation on that $4K without being allowed to include the cost or depreciation in figuring your gain without also filing form 3115.  If you don't mind paying taxes on a deduction you didn't take then don't amend  

[VolvicNaturelle]

Thank you! Let’s assume I were to simply accept to overpay taxes here. Wouldn’t that ‘arbitrary’ closing expense be a problem because I can’t back it up? Or would that be acceptable because it is only a portion of what I could have included in the cost base - effectively you could say I elected to only partially take the fees into account. 
I know it sounds stupid; where I’m getting at is that I’m uncertain whether everything would indeed be fine if I were to do nothing a as you seem to suggest. 

Thank you for clarification!

[Carl]

From what I understand, form 3115 does not apply.

If the 2022 tax return was the first tax return to show that property, and 2022 was the tax year you placed that property in service, then you are correct. Form 3115 does not apply *at this point in time*.

Would I send in a 1040-X+revised schedule E?

Yes. But it's not called a "revised" tax return. It's an "amended" tax return. (In some cases, terminology matters.)  You can amend your 2022 tax return and should do so "BEFORE" you even start your 2023 tax return. Take note that a prior year amended tax return must be printed, signed and mailed to the IRS.

Or can I just shift over to the correct depreciation amount while keeping track of the cumulative? Would TT support this correctly - have found there are some rigidities?

No. If you just arbitrarily change things on the 2023 tax return, you "WILL" permanently skew the numbers for 2023 and all future tax years. That's why it's important to amend your 2022 tax return *before* you start your 2023 tax return. Otherwise, incorrect data *will* be imported into the 2023 return.

After you amend your 2022 tax return, make absolutely certain that you import from the amended 2022 tax return, and not from the originally filed tax return.

Also, make a backup of the originally filed return in both .tax2022 and PDF format *BEFORE* you start the amending process. That way, if you mess up you have the original to start over from.

On another note: Is it required/advisable to change anything?

Yes, you need to correct the 2022 tax return. Otherwise if you are ever audited in the future, you will not be able to "prove" your incorrect numbers.

I would just let it go (~4k over that period seems negligible), but unsure since the number plugged in was simply wrong, I only have paperwork to back up the correct larger number.

Three things to keep in mind if you ever have the unfortunate experience of dealing with an IRS audit.

1) You are guilty until proven innocent.

2) The burden of proof is on the accused (that would be you!) and not the accuser.

3) If it's not in writing, then it flat out did not happen.

[VolvicNaturelle]

Thank you very much both, really appreciate your help! I'll keep digging a little and then attempt an amendment