Recently sold a property and when estimating capital gains/recapture tax liability, became aware of depreciation and cost basis issues. Purchased 50% interest in a property with family member (2006). I occupied the house for several years at which time it was converted to rental. Tax preparer (CPA) completed my return correctly for year placed in service - reflected my 50% of income/expenses on Schedule E and depreciation based upon my 50% ownership. The Asset/Depreciation Schedule shows full purchase price of land, adjusted cost basis (for improvements made during occupancy) for the house, and then reduced those amounts to reflect my 50% share.
I moved abroad, and during divorce, moved away from wife's accountant (year after placement in service). The new accountant (CPA) was aware of my 50% ownership as he recorded gross rents and expenses on Schedule E, then halved them on line 22 - but the depreciation he recorded on line 20 suggested I owned 100% of the property. The Asset/Depreciation schedule shows the cost basis consistent with the original accountant, EXCEPT the schedule DOES NOT ADJUST FOR ONLY 50% ownership. This continued for 3 years, at which time I started using Turbotax, and unfortunately, I relied upon his entries so the cost basis and depreciation each year has been incorrect.
Based upon TTax Community discussions, this would be a mathematical/posting/calculation error and not eligible for 3115 - the only option available is to amend open tax years. Changes need to be made to building cost (fortunately, unchanged from placement in service amount) and Land, and recalculate the annual depreciation amts for the amended years (Prior Claimed Depreciation has to be maintained for recapture and then this amt increased by the recalculated/correct depreciation amount claimed in each amended year).
1) Whats the best way to accomplish this? Anything to be particularly careful about?
a) delete the existing asset entries and enter corrected Land/Bldg amts with the Prior Depreciation?
b) although the effect of doing the amendments may be a bit of a wash, I presume it is the correct way to address this (rather than make these adjustments in the year of sale) and acknowledge awareness of the error. Agree?
2) The Prior Depreciation is higher than what was claimed on the Schedule E due to the mistake made by the 2nd accountant in the first year he did my taxes (i.e. 1st accountant's Schedule E showed say 2500 of depreciation, the following year, 2nd accountant's asset/depreciation schedule shows 5000 of prior depreciation - more than what was claimed in the prior year/1st year in service. Can I reduce the starting Prior Depreciation balance from 5000 to 2500?)
2) In his 3rd/final year of service, the 2nd accountant entered loan refinancing costs on the asset/depreciation schedule, and a year of amortization expense. There was also a subsequent refinance. I didnt reflect these on my schedule (amort on E, or on the Asset/Deprec Schedules) in TTax. Are the related amortization costs subject to recapture? Can I add them to the schedule for the amended tax years, recording the PRIOR AMORTIZATION that COULD have been claimed but wasnt, and claim the correct annual amortization expense on the E for each of the amended years?
Thanks so much for all the help you provide on these boards, and for any specific insight/advice you have for my situation above.
