Rental Depreciation

[sathish23]

Hello,

I converted my primary residence as rental property in 2017. I have used turbotax to file taxes but have not depreciated rental property. It looks like IRS would assume I have done the depreciation anyway. So have a few questions.

1. Can I take the depreciation starting from this year?

2. I should use the fair market value at the time the property was converted to rental (Zillow estimate?) as I had used it as primary residence earlier?

3. Can I include prior years depreciation in this years taxes?

4. Should I file an amendment for last years taxes to take the depreciation? If so, what is the process?

5. Turbotax is suggesting amount of depreciation taken in prior years? Should I use that amount or update it to 0?

Thanks

Sathish 

[DeanM15]

1. Yes, you can take depreciation for 2019 and skip 2018 and 2017. However, you will still get dinged for depreciation when you sell the property. I would amend 2017 and 2018.

2. Yes, you should use the FMV of the property (minus land value) for depreciation. 

3. You may add the prior year depreciation that you take on amended returns into your passive loss carryforwards, assuming that they go there and are not taken in the amended years return.

4. Yes, I would file amended returns for both 2017 and 2018. For TurboTax Online, simply login to your account and select “Amend a return that was filed and accepted.” If you used our CD/download product, sign back into your return and select “Amend a filed return.

5. If you are going to amend your returns, I would let the amount of suggested depreciation stay. If you do not amend then enter $0. 

[AmeliesUncle]

No, you are not allowed to amend.  It can only be corrected by using Form 3115, which TurboTax does not assist you with that.  I highly recommend going to a tax professional that is familiar with Form 3115 to prepare your tax returns this year.

And no, the depreciable amount is the LOWER of (1) your Adjusted Basis at the date it  was converted to a rental or (2) the Fair Market value on the date it was converted to a rental.

[sathish23]

Isn't that only needed if statute of limitations has expired (3 years?). In this case I would amend for 2017 and 2018 which would be within the limits correct?

Thanks

[AmeliesUncle]

No.  If you have incorrectly not claimed depreciation for 2 or more consecutive years, you have established an "accounting method".  The only way to correct that is to file Form 3115.

[sathish23]

Hi AmeliesUncle,

Thanks for the clarifications. So if I understand correctly, I would not be amending tax years 2017 and 2018. I would be filing 2019 with the correct accounting method (taking rental depreciation) and also file form 3115 along with it to correct prior years accounting method. Correct?

Also does turbotax provide professional tax service for a fee that can help with this situation?

Thanks for all the replies so far.

[AmeliesUncle]

Correct, don't amend, file Form 3115 with your current tax return.

No, as far as I know, TurboTax does not have any service that will file Form 3115 for you.  You will need to go to a local tax professional.  Make sure that tax professional is familiar with how to file Form 3115 to 'catch up' on missed depreciation.  

[sathish23]

I have been trying to contact multiple accountants where I live and everyone is suggesting to amend the prior returns and are not sure on the form 3115. I am confused.

Would I be able to take the additional depreciation this year to account for the prior years?

If i don't amend or file form 3115 and take rental asset depreciation this year, would it be OK? I would be losing some money as refund as I did not do it for the prior year and half?

What other options do I have?

Thanks!

[AmeliesUncle]

Keep calling around to find a GOOD tax professional that knows what they are talking about, because Form 3115 is the way to fix it.

Personally, I would recommend an Enrolled Agent.

https://irs.treasury.gov/rpo/rpo.jsf