What if I didn't take depreciation value on rental property? Do I need to amend?

[stevemane11]

I think I may have made some mistakes on my previous tax returns regarding how depreciation expenses and depletion were calculated for my rental property.

Background:  I originally purchased my house in 2015 as my primary residence.  In May 2021, I did a cash-out refinance. The loan amount was $360,000, and the house was appraised at $520,000. I converted the property into a rental on June 1, 2022. However I notice while preparing for this years return “Tell us about this rental asset,” I wasn’t sure how to calculate the property’s value. I came across a screen in TurboTax asking me to confirm prior depreciation. TurboTax calculated a total depreciation from previous years to $5,427. However When I looked at my past returns, Line 18 on Schedule E (Depreciation/Depletion) is blank for both 2022 and 2023. Did I miss claiming depreciation in those years? If so, do I need to amend those returns?

Schedule E from last year 2023 Tax return. 

Rental income: $26,100

Expenses: $824 for insurance, $11,234 for mortgage interest, $385 for repairs, $318 for supplies, $5,387 for property taxes, $323 for utilities for a Total expenses: $18,471

It showed me having a net income of $7,629.

I live in San Diego, where land often costs more than the house itself.

My 2024 property tax shows $279,000 for land and $130,000 for the house. I don’t have the 2022 property tax statement handy, but I’ll find it. Am I losing out on approximately $3000 - 4,000ish in depreciation from previous years? If so, how can I fix this? Any guidance would be greatly appreciated!

[PatriciaV]

Yes, you need to amend your prior returns to catch up on depreciation and receive the benefit of the additional expense. Further, if you do not claim allowable depreciation, the basis of the property must still be reduced by the full amount of the allowable depreciation, even though no tax benefit was realized.

See this TurboTax article for more info: How do I amend my federal tax return for a prior year?

If you need additional help completing the amended returns, come back to this forum and post your questions.

The following information is from IRS Pub 946 "How Do You Correct Depreciation Deductions?":

"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. See Filing an Amended Return, next. If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. See Changing Your Accounting Method, later."