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When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

i.e. I did not take depreciation for the prior 3.5 years. I can only amend 2014 forward, so therefore cannot correct the first 6 months the home was a rental. 

When TT asks to "Confirm Prior Depreciation", do I accept their numbers or put in "0" for my first amendment and accept their numbers for the other 2 years?

TIA

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Level 5

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

If you are filing amended tax return(s) and did not report depreciation on your prior year tax return(s), then you should leave the box blank (TurboTax may automatically enter zero). You may verify the prior year depreciation reported by selecting the Where can I find this? link on the same screen.

Furthermore, you should not "accept their numbers for the other 2 years" because TurboTax automatically calculates the depreciation amounts you may have taken since you began using the asset for your rental. If you did not report depreciation, the TurboTax calculation would be inaccurate. Thus, you would enter the depreciation amount from the prior year amended tax return you are planning on filing and each subsequent year, you would have to ensure you entered the accumulated depreciation amount on the Confirming Your Prior Depreciation screen (not just the prior year depreciation amount).

As you may already know, depreciation reduces the owner’s basis in the property. When depreciable property is sold or disposed of, depreciation that was allowed or allowable on that property must be taken into consideration. In other words, even if no depreciation deduction was taken, the net profit or loss on the disposition of the property must be computed as if depreciation was actually taken.

If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. If you are not allowed to make the correction on an amended return, e.g. deadline for filing amended return has passed, you may be able to change your accounting method to claim the correct amount of depreciation.

You would have to calculate the final depreciation adjustment outside TurboTax and/or create dummy tax return(s) to help calculate the depreciation adjustment then manually enter a section 481(a) adjustment in the respective section(s), e.g. Schedule C, Schedule E, etc.

You would also have to file Form 3115, Application for Change in Accounting Method, which is available as print only (not e-file) in TurboTax CD/Download. You would have to switch to Forms Mode Mac and on the left panel, at the top, select the Open Form icon and Search or Browse for “3115” and select the Open Form button. For specific mailing instructions, please review Instructions for Form 3115, page 2.

Please feel free to review the following for more information, IRS Publication 946, How to Depreciate Property, page 13: How Do You Correct Depreciation Deductions?

Section 481(a) adjustment. If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. A negative section 481(a) adjustment results in a decrease in taxable income. It is taken into account in the year of change and is reported on your business tax returns as “other expenses.” A positive section 481(a) adjustment results in an increase in taxable income. It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income.” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $50,000. Make the election by completing the appropriate line on Form 3115. If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero.

Of course, this would not be a simple calculation/process, thus you may want to seek a tax professional for additional guidance.

Please review the following link(s) and the link(s) embedded on the webpage(s) for more information:

View solution in original post

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Highlighted
Level 5

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

If you are filing amended tax return(s) and did not report depreciation on your prior year tax return(s), then you should leave the box blank (TurboTax may automatically enter zero). You may verify the prior year depreciation reported by selecting the Where can I find this? link on the same screen.

Furthermore, you should not "accept their numbers for the other 2 years" because TurboTax automatically calculates the depreciation amounts you may have taken since you began using the asset for your rental. If you did not report depreciation, the TurboTax calculation would be inaccurate. Thus, you would enter the depreciation amount from the prior year amended tax return you are planning on filing and each subsequent year, you would have to ensure you entered the accumulated depreciation amount on the Confirming Your Prior Depreciation screen (not just the prior year depreciation amount).

As you may already know, depreciation reduces the owner’s basis in the property. When depreciable property is sold or disposed of, depreciation that was allowed or allowable on that property must be taken into consideration. In other words, even if no depreciation deduction was taken, the net profit or loss on the disposition of the property must be computed as if depreciation was actually taken.

If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. If you are not allowed to make the correction on an amended return, e.g. deadline for filing amended return has passed, you may be able to change your accounting method to claim the correct amount of depreciation.

You would have to calculate the final depreciation adjustment outside TurboTax and/or create dummy tax return(s) to help calculate the depreciation adjustment then manually enter a section 481(a) adjustment in the respective section(s), e.g. Schedule C, Schedule E, etc.

You would also have to file Form 3115, Application for Change in Accounting Method, which is available as print only (not e-file) in TurboTax CD/Download. You would have to switch to Forms Mode Mac and on the left panel, at the top, select the Open Form icon and Search or Browse for “3115” and select the Open Form button. For specific mailing instructions, please review Instructions for Form 3115, page 2.

Please feel free to review the following for more information, IRS Publication 946, How to Depreciate Property, page 13: How Do You Correct Depreciation Deductions?

Section 481(a) adjustment. If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. A negative section 481(a) adjustment results in a decrease in taxable income. It is taken into account in the year of change and is reported on your business tax returns as “other expenses.” A positive section 481(a) adjustment results in an increase in taxable income. It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income.” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $50,000. Make the election by completing the appropriate line on Form 3115. If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero.

Of course, this would not be a simple calculation/process, thus you may want to seek a tax professional for additional guidance.

Please review the following link(s) and the link(s) embedded on the webpage(s) for more information:

View solution in original post

Highlighted
New Member

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

same issue - i have 3 yrs of amended returns to mail in.  do i have to mail them all separately, or can i send all 3 yrs in one envelope since it is the same reason for filing amended returns?

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Level 15

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?


@amending3yrs wrote:

same issue - i have 3 yrs of amended returns to mail in.  do i have to mail them all separately, or can i send all 3 yrs in one envelope since it is the same reason for filing amended returns?


Use three separate envelopes since each amended return is for a different tax year. 

Highlighted
New Member

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

thank you

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Level 15

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

also recommend you use a method where you get proof of delivery.  the IRS is way behind in processing paper returns so if something happens to them you'll need proof you filed timely. 

Highlighted
Level 15

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

. I did not take depreciation for the prior 3.5 years. I can only amend 2014 forward,

I'm looking at the date of your post and you started this thread June 1, 2019. You can not use TurboTax to amend a 2015 return or earlier, because TurboTax only supports their software for the current tax filing year and three years back. Additionally, because you're talking more than 5 years of not taking depreciation, amending isn't the correct way to fix this. To fix it, you'll need to file IRS Form 3115 - Change in Accounting Mathod.

Now while the TTX program does include the form 3115, understand this form is not simple by any stretch. So if you yourself are not a tax professional of some type, I would highly recommend you seek professional help on this. Attempting the 3115 yourself to make things right, can come back to bite you later making things even more costly the what you would pay a tax pro to do it right the first time.

But I'll continue anyway.

so therefore cannot correct the first 6 months the home was a rental.

When TT asks to "Confirm Prior Depreciation", do I accept their numbers or put in "0" for my first amendment

If you know for a fact that you did not take depreciation for the last 6 months of the prior tax year, enter ZERO.

 

and accept their numbers for the other 2 years?

You can't blindly accept the numbers for the other two years. That's because when you amend a tax return, it is physically impossible for TurboTax to import data from the prior year's return, weather that prior year's return was amended or not.

What you must do is "CONFIRM" the prior year's depreciation number is correct. If it is, then you're good to go. If it's not, then you will need to manually change it and make it correct.

 

Highlighted
Level 15

When amending multiple consecutive years to account for rental home depreciation, do I leave the recommended amt. in TT "Confirming Prior Depreciation" or do I change it?

@Carl the poster @amending3yrs just started posting today on this thread.  They did not indicate if they had the same problem as described in the original question, only that they had 3 amended returns to file.

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