Deprecation Expense Not Taken in Previous Years

[Chris1037101]

I'm helping my parents file their taxes this year and discovered they have not been taking depreciation expense on their rental property they have owned since 2005. Can they still claim depreciation expenses on the property for previous years and, if so, what is the process? Can they file a form 3115 for a change in accounting method or do they have to amend each tax filing individually? Thank you.

[ColeenD3]

Yes, you will have to file Form 3115. You can not go back that many years to add the depreciation.

Unfortunately the depreciation recapture is "allowed or allowable" meaning even if you never depreciated it, you would still have to recapture the depreciation. Depreciation taken would be on line 18 of Schedule E.

One solution is to elect an accounting method change and file a Form 3115 in the current year and take the  prior depreciation as a section 481(a) adjustment. [land  value is separated, land is not depreciated]

Below are the IRS links related to the change in accounting method. TurboTax does not have that form.

May be these will help

Form 3115, Application for Change in Accounting Method

Form 3115

Instructions for Form 3115 (03/2012) 

Instructions

Form 3115,

PDF

@Chris1037101

[Anonymous]

be careful. this 481 adjustment is passive if the rental property is passive and thus the deduction allowed for 2019 could be limited.  

there is no specific “special” rule to avoid the IRC 469 passive loss rules as Reg 1.469-2T, among other citations, notes that the deduction maintains the same character as a passive loss.

so the 481 adjustment which would be the cumulative amount of depreciation that should have been takem for years 2005 through 2018 would be listed on schedule E for the property.