Rental roof replacement and other repairs

[gulsheenk]

Hello, this is regarding my rental condo in Michigan and I have the following two questions:

Q1. The condo association shared the that $2580 paid in 2024 were towards roof repair, hot water tank storage tanks, gates/pillar repair.   I have included this amount under Any Miscellaneous Expenses;  is this the correct place? 

Q2. My rental condo's roof was replaced in 2021.  Tax & Accounting Consultant had advised that roof replacement payment of $2967 would be amortized over  27.5 years instead of being expensed all in 2021.  While doing 2024 taxes, I realized that I had missed including this expense in 2022 and 2023.  Can I include these along with my 2024 expense (separate line by year) under Any Miscellaneous Expenses ? see enclosed attachment 

[gulsheenk]

A gentle reminder for the questions above, please

[DianeW777]

Yes, miscellaneous expense can be used for the expense shared with the condo association since it appears all are repairs and not replacements.

Yes, you can include the new roof assessment paid in 2021 for the tax years you missed the depreciation.  However the IRS does have a specific plan of action for that.  Please see the instructions below which will allow you to claim it in 2024 without amending the prior year returns.

First add the roof replacement assessment as a capital improvement in your assets for your rental with the correct date placed in service (2021), i This will provide the correct amount of depreciation for the current year and all future years. The chart for 27.5 year property is added below and can be found in IRS Publication 946.

Next, for the prior depreciation you have not used.  At the point of sale, you will recapture any depreciation that was allowed or allowable. 

• You can use the following form to correct the depreciation for your rental property. Take any amount not previously expensed on prior returns, as an expense on the current year tax return as 'Other Expenses'.

Form 3115 Instruction: By including this with the current year tax return, you can complete everything on the 2024 tax return.

• Adopt a change in accounting method: This option allows you to go back as far as you need. Make the adjustment on your current year tax return to expense the missing depreciation.
  • Why am I adopting a change in accounting method? Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.
• This form is available in both TurboTax Online and TurboTax Desktop. TurboTax doesn't help you with this form. And your return must be mailed because this form is not supported through e-file.

[gulsheenk]

Hi, @DianeW777 , thanks a bunch for your comprehensive response. 

In 2021, a certified accountant had filed my taxes and had shared the note, "Because it is a roof replacement and not a repair it will need to be capitalized and expensed via depreciation over the 27.5 years instead of being expensed all in 2021. Because the payment was made late in the year in December only $8 is deductible for 2021. The rest will be deducted around $107.89 for the next 27.5 years. "  So, based on this, I am all set for 2021. As mentioned in my earlier message, I had missed including these expenses when filing taxes for 2022 and 2023. 

I am confused why I need to complete the Form 3115, which is  "Application for Change in Accounting Method for automatic and non-automatic change requests." Please explain.  

If I do need to complete the form 3115, please share, how I can initiate this form within ongoing TurboTax filing.  Thanks again!

[DianeW777]

The article below will provide the guidance and details about how to prepare Form 3115. You will mail your tax return and include this form.

• What should I do if I didn't take depreciation on my rental property?

@gulsheenk 

[gulsheenk]

Thanks for the link, @DianeW777 

from the post below, it seems, I will need to work on form 3115 in form view and then Turbo Tax will include it in the e-file.  However, the link below is recommending to take professional help for this form as it is a complex form and "Messing up the 3115 to fix a past mistake (such as incorrect depreciation) and doing it wrong, will make the problem even worse many times over."  Based on this, I am now double thinking if I really want to do it considering deprecation amount from the last two years won't give me much deduction. 

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-to-file-form-3115...

[DianeW777]

It depends on your comfort level.  Form 3115 used to be a bit more confusing and complicated, however the article now helps to take your through the steps easily.  The IRS allows this action to eliminate amendments and allow you to 'catch up' for any depreciation you missed by mistake. 

It's up to you if you want to utilize it and move forward. You have the option of amending 2022 and 2023. Tax year 2022, must be completed by April 15th and you have more time for 2023.

@gulsheenk 

[gulsheenk]

Thanks, @DianeW777 , for sharing this step-by-step guide (https://ttlc.intuit.com/turbotax-support/en-us/help-article/asset-depreciation/didnt-take-depreciati...) .  I am filling the form now and have the following questions: 

1.) For the tax year of change, the link states to enter the current year.  Wondering if this should be 2022 through end of 2023, years for which I missed including the expense?

2.) "Part I: For question 1(a) DCN: Type in 7."  However, in the form, it states DCN 12 times with numbering pre-fix.  Typing in "7" after (7) DCN does not sound appropriate.  What value should be included after (7) DCN ?

3.) Please clarify part II point 6.b 

4.) Part II point 6.c asks for examining agent's name and contact information. How do I get this information for my 2022 and 2023 filed taxes.

5.) Part II point 6.d asks if this form 3115 has been shared with the examining agent. In my case, I think it would be "No" considering I have not filed my taxes yet, right?

6.) Part II point 7.a "Does audit protection apply to applicant's requested change in method of accounting?" I believe it is "No" for me because I did not select Turbo Tax's audit protection services. However, if it is "No", I need to attach an explanation.  What kind of explanation do I need to include?

7.) Part II, for points 8 through 12, I have selected "No"

8.) Part II, for point 13, "Is the applicant requesting to change its overall method of accounting"? I believe my response should be "No" considering this is for Filing an amended return and not exactly change of accounting method. Please confirm.   

(Pausing here as the form is indeed complex; I will resume based on your responses)

[DianeW777]

Answers are listed below, however only complete the questions noted in the TurboTax article, do not answer any other questions on the form.

1. Use the current tax year 
2. Enter 7 beside 1(a) 
3. See instructions
4. There is no agent, leave blank
5. NA
6. No
7. Based on your situation - assume the answers are No
8. No - based on the FAQ, Instructions do not indicate Schedule A should be completed.

It may be best for you to seek a tax professional who can just help with this tax form, then mail your tax return with the completed Form 3115.

[gulsheenk]

Thanks a bunch! I am seeking a tax professional.