Should I amend my 2020 return to reduce depreciation claimed if I claimed more than I should have on my rental property?

[saurabh-build-gm]

House was converted to rental on Nov 2020 but depreciation was claimed for the entire year. should I file amended return to reduce the depreciation claimed?

[DianeW777]

First make sure you actually did have a full year of depreciation.  If you entered the date you began renting it as November, 2020 then TurboTax would automatically select the correct depreciation unless you didn't use the step-by-step.

Yes, you should  make the correction if you find it was not correct.  You may owe money back depending on the amount of depreciation you should not have taken. Keep in mind the amendment should be completed by April 15th since that will be the three year statute, although there is no statute for a balance due.  

• Accessing a prior-year return
• How to amend (change or correct) a return already filed?
• What is the deadline for filing an amended return?
• How to file an amended return with the IRS

The rental house should be entered by selecting Residential Rental Property and TurboTax will depreciate over 27.5 years.  Enter the full amount of the purchase price plus purchase expenses then enter the portion for land only.  

[saurabh-build-gm]

Thank you for the reply. I sold the property last year and currently working through the depreciation recapture process. Since my accountant claimed depreciation for the entire year of 2020 although the property was placed in service in November 2020, I am having to pay tax on a larger amount of depreciation claimed in 2020. since my income is higher than the limit of passive loss that I can claim, I did not make any money on the rental even without deducting depreciation. So it feels worse to have to pay tax on the depreciation recapture that did not help me in any way. Currently I have an accumulated passive loss of more than $10,000 because of the higher depreciation claimed in 2020. 

[ThomasM125]

If you had any suspended passive losses associated with the property, you can deduct them in the year you sell the house. The gain on sale if any will be taxable as ordinary income up to the amount of the depreciation on the house (capped at 25%) and the rest is taxed at capital gain rates. So, if you reduce the accumulated depreciation you may shift more of your gain from ordinary income to capital gain income, but you're not going to change the amount of gain subject to tax. Also, the depreciation amount you use for the depreciation recapture is the amount that should have been taken on the property, not what you actually deducted. So after you amend your return the depreciation recapture should remain the same. The only difference will be you'll have a smaller loss in the year amended, which will reduce your passive loss carryover.