What IRS code or law says I Must file an amended return for Depreciation expenses not claimed or needed?

[TaxNye77]

I understand that I have to account for depreciation when I sell for the correct gain calcuation, but I can find no law that says I have to take it as an expense deduction.  I do not get a taxable benefit from this,  Due to passive activity limitations.  I know when I sell the home, they will  use " recapture methods" to get the basis for taxable gains.    Each year there has been a loss due to management fees taxes and mortgage interest alone. I can only claim Zero income, no losses, because I make way to much.  Someone is telling me its a requirement to file an amended return, and  I can find no proof of that anywhere.   Claiming it would " increase my Carryforward" losses, but I never get to use them, I make too much money.  Why do I have to by law file this with the IRS? What law or regulation is saying I have too?

[DianeW777]

What you may not understand is that the full amount of any loss is allowed at the time of disposition or sale.  The full loss is deductible in that year. So the point is for you not to loose the deduction when it will be taxed in the year of sale through gain. This way it can offset the gain in the year of sale by taking the loss that year.

• Topic 425 - Passive Activity Losses

[TaxNye77]

Thanks Diane, but the real question is, is there a requirement, to file an amended return. This tells me, that if did not file  for depreciation expense deduction, when I sell I can offset my recapture of depreciation that lowers my basis, with the un used depreciation, correct? That's fine, however, is their a requirement, that says I have to do an amended return for this?  I am looking for requirements  This does not say you MUST or you CANNOT do it etc only what I can do or.. or may do.. .  See my point,   The smart person does document it, but there is no rule that says you have to or pay a fine etc... make sense?

[Critter-3]

You cannot just  add the depreciation deduction in the year of sale to offset the depreciation recapture of the depreciation that was allowed or allowable.   

Nowhere does it say the depreciation had to be deductible each year.   The unallowed losses on the Sch E are accounted for on the form 8582 each tax year   and are captured in full in the year of sale. 

If you failed to take any depreciation while you owed the property then you cannot just take the depreciation in the year of sale without filing a complicated form 3115 (which the IRS can deny) so you will lose the ability to take the deduction at all  and you would still have to pay taxes on the recapture of the deduction you never took to begin with.   Best  to do things the right way and avoid IRS issues later down the road. 

[TaxNye77]

  Thank you, all of that has been noted, all as best practice,  so to confirm there is no requirement only a strongly advocated method correct?