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Rental property cost basis

Hello,

For 2019 tax year, the cost basis for a rental property was entered in ~$50k below actual costs and date of service is off by a few months.  Land value is correct, though have always taken depreciation off the incorrect cost basis.  Realized this error recently and filed for an extension.  How do I correct this moving forward in 2023 taxes?  Amend years 2020-2022 and take 2019 as a loss?  Appreciate any advice.

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5 Replies
KrisD15
Expert Alumni

Rental property cost basis

You can amend, or file Form 3115 which is a request for a change in accounting, and claim the excess depreciation as an expense for tax year 2023. This should make you current and you can adjust so the depreciation taken going forward is correct. 

 

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Rental property cost basis

As a non-tax expert, it seems like amending 2020-2022 returns would be easier the easier option then Form 3115.  Is it correct that nothing can be done to 2019 at this point?  What are the implications of having incorrect cost basis and in-service dates (off by a few months) remain in 2019 return? 

Vanessa A
Expert Alumni

Rental property cost basis

Form 3115 may be a long form to fill out, however, you cannot amend to claim any type of refund for 2019. Also, you can only amend to claim a refund for 1 year prior when correcting depreciation.   This would mean that for all the years you did not take depreciation, other than last year, you would not benefit by amending your returns as you would not get anything extra back.  

 

So, your best option is to include form 3115 with your return if you want to get the most out of your money. 

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Rental property cost basis

Would Form 3115 also be appropriate for correcting in-service dates?  I had included ~2 months of personal use (incorrectly used date tenants moved in as in-service) but should be considered a rental for the entire time.  There seems to be a huge difference in depreciation (~$1k) when adjusting between dates/personal/business. 

Thank you.

 

 @Vanessa A 

Rental property cost basis

If you were using an incorrect Cost/Basis, you need to amend.  Form 3115 does not apply.

 

Using the incorrect "placed in service date" ... I *THINK* the same answer applies, that Form 3115 would not apply, but I would need to research that to be sure.

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