Rental property depreciation not claimed in previous years, how to fix/claim for 2019?

[agoltsman]

I have a house # 1 we purchased in 2009.  In 2014 we bought a new house #2, moved, and converted house #1 to a rental.  Looking at my TurboTax records from 2014 I was not taking or calculating the depreciation.  I didn't know about it, but kinda miffed TurboTax didn't educate me/help me.  We plan to hold on to the home as a rental.  Can I start taking the depreciation for home #1 in 2019?  Do I have to amend previous years? if so, which years?  

Thank you,

Alex

[AmeliesUncle · Accepted solution]

In order to 'catch up' on the depreciation, you need to file Form 3115 with this tax return.  TurboTax does not assist you with it, and I highly recommend going to a tax professional this year to correct things.

[SusanY1 · Accepted solution]

You will need to file Form 3115 with your return, which is not a form supported in the TurboTax program.  You can find the form here: IRS Form 3115 .  You may wish to seek professional support for this form this year. 

[agoltsman]

Thank you SusanY1!

So, is it worthwhile for me to amend all returns going back to 2014?  I would assume it would only reduce my gain from the rental (good for me) or increase any carryover depreciation, correct?  So all cases *should* result in less tax owes, or bigger refund?

If so, under what situations would it makes sense for me to not do that?  If I was going to keep the property for longer than the 27.5 years?

Lastly, do I NEED to amend all previous returns? or can I just enter the details for the property and take the depreciation for the first time in 2019?

Thanks,

Alex

[Carl]

YOu can not amend a return more than three years back, for several reasons.

1) TurboTax only supports their program for the current tax filing season and three years back. In order to amend a prior year return you *MUST* use the CD/Desktop version of the TurboTax program that you physically install on your Windows or MAC computer. For tax years 2015 and back, the *REQUIRED* updates and corrections for the program are no longer availalble. So if you use TurboTax to amend a 2015 return or older, it *will* *be* *wrong* most likely.

2) The IRS says that if amending a return more than three years back will result in you getting a refund, you *WILL* *NOT* be paid that additional refund. Three year statute of limitations on that. However, if you owe the IRS, you *WILL* pay what you owe, plus interest, penalties and late fees.

First, confirm beyond "any" doubt that you have not taken depreciation on the property. With the exception of some scenarios, the TurboTax program figures depreciation "for you" in the background and does not bother you with the details.  So look at your 2018 tax return and pull up the SCH E. If there's a figure on line 18 under the column for that specific rental property, then depreciation was taken for 2018. 

To confirm it's been taken all years, save the 2018 tax return in PDF format and you want to save everything. Not just the "forms required for filing" or the "forms for you records." You want to save *EVERYTHING*. Then open the PDF and look for two IRS Form 4652's related to that specific property. Both forms will print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation". You're interested in the first one.

On that form 4562 you'll see the property listed as an asset. If you have numbers in that row in the "prior years depr" column it's probably 5 times or more the amount in the "current year depr" column and indicates that you have "in fact" been depreciating the property all along without even realizing it.

Now if you have not been depreciating the property, then the bottom line is, you need to seek professional help to fix this. While the TurboTax program does include the IRS Form 3115, it *is* *not* *simple* as it may look, or as you may think. If you yourself are not a tax professional, then you need to seek the services of a tax professional to help you with this. Since you have not taken depreciation for more than 3 years back, amending is not an option for you. The 3115 is required in order to fix this. Seek professional help yesterday, if not sooner.

[AmeliesUncle]

@agoltsman 

Notice that Susan changed her answer to match mine.  You need Form 3115, and probably a tax professional.

As far as starting it now and ignoring what was missed, you don't want to do that.  The missed depreciation still lowers your "Basis" (similar to cost).   So when you sell the property, you will be paying tax on the gain due to that depreciation, even if you did not actually take it.  So you want to claim it.

[Anonymous]

you can't amend any return prior to 2017. those are closed years.   what a 3115 does is you tell the IRS you messed up in claiming depreciation.   then the IRS lets you take the deduction you should have taken even for those closed years.    see a pro. if you mess up what could eventually happen is all that depreciation that you should have taken but didn't.  well, when you sell you have to treat the sale as if you took all that depreciation which means you'll be paying taxes for a deduction you never got the benefit of.  

even if you were to amend 2017 and 2018, without the 3115 you'll lose out on the depreciation for 2014 through 2016, but will have to pay taxes when you sell as stated above. 

[smallBbigB]

I am in the same boat as the OP. As there is just 8 days for taxes deadline, is the extension the right path? This way I can find a tax pro and file the taxes with depreciation correction. What do the pros say?

Thanks

[PattiF]

Yes, you should file an extension and find a tax professional to file Form 3115 for you. You should fix this now instead of continuing without depreciating your property.

@smallBbigB 

[smallBbigB]

Thanks. 

[Luckyirishdb]

OK here’s my situation. I started my depreciation in 2019 for a rental property . With TurboTax. I know you can only go back three years to amend and re-file. I am not sure when I started the depreciation process if I did it right. From what I’ve been reading and I know understand is that the depreciation is a significant reduction. In 2019 the depreciation was only $68. And I’m not even sure if I did the depreciation portion right. What I really need to do is go back from 2019 to 2022 and make sure I depreciate it properly.  I also want to properly learn how to do this process. I could use some advice and guidance. I appreciate it, thank you and god bless.

dave

[Mike9241]

i think your best bet is to consult with a tax pro. we can't see what you did or any of the numbers. also 2019 can no longer be amended. time ran out 10/15/2023. now you have to do a change in accounting method for which a 3115 is needed and is done in the current year.