I purchased a property in 2008 and then rented it out in 2011. I want to make sure my depreciation is correct. I know that you can only depreciate the buildings and not the land. My Question is what value do I put for the buildings and land in Turbo Tax. is it the value of the building and land when I purchased in 2008 or the value when It was assessed by the County assessor in 2011?
The value was lower in 2011 than when I purchased so I need to know which one to use.
I appriciate the help!
Thanks again for the help! You guys are awesome.
Form 3115 can be used if there was NO depreciation taken, or it was taken using an incorrect procedure (such as depreciating it over 15 years), but it can NOT be used to correct the basis being depreciated (mathematical error).
Whenever you sell the property, makes sure you report the amount of depreciation that you actually took. When you do that, you will sort of be paying back the amount from your original error.
The IRS probably won't question any changes on your current tax return. The computers don't pick up that type of information very well (at least not yet), so unless an auditor looks at your tax return, it is very doubtful if any changes would ever be questioned. In the unlikely event they do, it should be a simple explanation of what happened.
I know I did this on one of my rental properties, but I corrected my basis in the 2nd year (2nd full year) so it didn't reduce the 2nd year deprecation by that much, and didn't really "stick out" as far as I could tell.
However, if I wasn't a tax preparer, I would consider not amending and just start things correctly on the 2015 return. 🙂
Depreciable basis :
In general, the adjusted tax basis of a principal residence is the cost of the property (i.e., what you paid for the property when you first purchased it), plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes. Improvements add value to the home, prolong its life, or adapt it to a new use. Regular repairs and maintenance are not included in the tax basis of the home. When a principal residence is converted to rental property, you need to know its basis for depreciation purposes. Its basis for depreciation purposes is the lesser of:
- The adjusted basis of the residence on the date of conversion, or
- The fair market value of the property at the time of conversion
When the property is converted the basis for depreciation is the lower of the adjusted basis on the date of conversion or the Fair Market Value (FMV) of the property at the time of conversion. Generally the basis is the cost of the property plus the amounts paid for capital improvements, less any depreciation and casualty losses claimed for the tax purposes.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/uac/About-Form-3115">https://www.irs.gov/uac/About-Form-3115</a>
You would not be able to file 3115 for a math error related to your basis calculation.
On form 3115, which is attached to your current years filing you will need to calculated your depreciation as it should have been take and what was actually take and report the difference as an 3115 adjustment under your rental property.
A copy of form 3115 will need to be mailed separately to the IRS to the address in the 3115 instructions.