rental property

[February251951]

I purchased a home in 2007 for $282k  in SC. I turned it into rental property with a rental management company 2011 when we moved from SC to TX.  I do not know what the Fair Market Value at that time but I would estimate $260k. We did not do any major home repairs.  We sold the house in 2019 for a loss at $235k. We never took any depreciation on the house. According to Turbo Tax because we never took any depreciation it said we could take it all at once which caused a 13k loss for 2019. Also we took the loss on the house which Turbo Tax said was $60k. My question is did I do this correct. If not what would you suggest the appropriate corrections would be.  

[ColeenD3]

You cannot take the entire depreciation all at once unless you use Form 3115, which Turbotax does not support.

Unfortunately the depreciation recapture is "allowed or allowable" meaning even if you never depreciated it, you would still have to recapture the depreciation. Depreciation taken would be on line 18 of Schedule E.

One solution is to elect an accounting method change and file a Form 3115 in the current year and take the  prior depreciation as a section 481(a) adjustment. [land  value is separated, land is not depreciated]

Below are the IRS links related to the change in accounting method. TurboTax does not have that form.

May be these will help

Form 3115, Application for Change in Accounting Method

Form 3115 (1)

Instructions for Form 3115 (03/2012) 

Form 3115 (2)

Form 3115,

Form 3115 (3)

[Carl]

The bottom line is this. You can not use Turbotax to file your tax return for the tax year you sold the property. Since you did not take depreciation on the property, you are required to include IRS Form 3115 with your tax return to account for the depreciation you did not take. The 3115 is *NOT* simple. You need professional help. So please seek professional help. Attempting this yourself will most likely result in you completing the 3115 incorrectly, which means that even after you sell the property, your issues with the IRS will not be over and will continue to haunt you. So please, for the sake of your own wallet, seek professional help for this.

[TerenceMarivel]

Hello ColeenD3,

I did the Form 3115, and I'm done with taxes.  My question is, can I attached form 3115 as a PDF and e-file with TurboTax?

Thank you for your help,

Marivel

[AmyC]

@TerenceMarivel The form 3115 is available for print only and is unsupported by the program. See Federal form availability.  Instead, you would need to attach it to your return and mail lit in.

There is a second option. You can fax the 3115 to the IRS and then let the IRS complain that you failed to file the 3115 with your tax return. That will probably trigger a letter for you to fax the 3115 again and hold up your return. Which may still be faster than mailing it in with the 3115 as required.  See Temporary procedure to fax automatic consent Forms 3115.

Just be sure you understand the IRS is asking for the 3115 with the return.

[TerenceMarivel]

AmyC,

1. Thank you for your prompt response and helpful information.  So just to clarify two things:

  a.  I cannot attach my Form 3115 (which is already done and signed)to my tax return and e-file, correct?

  b. The second option, I should e-file my income tax return without the 3115 because the program doesn't support it, and then fax the 3115 to IRS.  Doing this will probably trigger a letter asking me to fax the form.  

2. To be honest with you, I really don't want to mail my tax returns.  My son mailed his 2019 tax return, and he still hasn't heard anything from IRS.  He called IRS, and they told him that he just has to wait.   I really don't want to be in this predicament. 

Once again thank you for your help,

Marivel

[AmeliesUncle]

If you are using TurboTax for your personal tax return, you need to MAIL your tax return to include Form 3115.  It must be part of your tax return, PLUS you need to mail or fax a SECOND copy to the IRS.

[TerenceMarivel]

Thank you AmeliesUncle.

Marivel