De Minimis Safe Harbor Election.

[DianeW777]

Since the improvements were completed in 2021 to sell the property you should enter them as part of the sales expenses and this will become part of the cost basis before applying the selling price and will reduce the gain on the sale (Section 1250 Property).

Delete the improvements as an asset and the correct end result will take place. Also remove it from the Land category.

Use the following example and information to arrive at the correct selling price for each asset that is on depreciation.

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

Please update here if you need further assistance.

@loellen1

[pryoung]

Can I use Form 3115 to claim several years of unreported depreciation on a residential rental property

[Mike9241]

yes you must actually file the form. it can be complicated because of passive loss rules. so you may want to consult with a pro so it's done correctly

[pryoung]

So it is possible using this Form 3115 to claim 9 years of unreported depreciation? My friend was unaware the IRS would recapture depreciation even if not claimed and she is being told she has to do amended returns and only can do that for 3 years back.

[RobertB4444]

@pryoung  Form 3115 allows you to change your accounting method and take depreciation on something that was previously not depreciable.  You will have to give valid reasons - using IRS code sections - for why you did not depreciate the rental real estate and request that you be allowed to depreciate it going forward.  

If you have no reason for not depreciating something except for the whole "I forgot" then the rule is you can go back three years and amend your tax returns and add the depreciation in (that means that you have until April 15 to file your 2018 return).  Any depreciation older than that (the first six years, in this case) is lost.  If you enter the value of the property into TurboTax and the date that the property was placed in service then TurboTax will calculate the prior depreciation for you so that you don't have to.

[pryoung]

There are multiple posts from Turbo Tax experts stating that Form 3115 is the only proper method for recovering unclaimed depreciation on personal rental property. That if you had more than 2 years of not claiming you cannot just do amended returns for previous three years and start claiming now.

I did not forget to claim over the past 9 years, I just did not realize I was supposed to and was just told that the IRS would assume it was taken whether it was or not. So please advise why Turbo Tax experts are giving mixed advice?

[DaveF1006]

I know that there has been mixed advice on the use of Form 3115 but the advice given by RobertB4444 in his previous is the most accurate given that pertains to your issue.

You won't be able to submit a 3115 to claim your prior 9 years worth of depreciation because there was no change in accounting method. You just chose not to take it so as far as the IRS is concerned thus if you didn't use it, you lost it.

You can however amend your return your 2019 and 2020 returns to claim depreciation for your rental property, receive a rental deduction for the depreciation, and receive a refund amount based on the deduction amount. To amend, assuming you filed with Turbo Tax in 2019:

1. Sign in to TurboTax.
2. Scroll down to under Your tax returns & documents,
3. Select Amend (change) 2019 return,
4. Then Start amending my 2019 return.
5. Then, select the reason you’re amending and follow the onscreen instructions.
6. Go to where you entered your rental property information and navigate to the Here's XXX rental property info
7. Select assets>Edit.  Go through the questions that it asks and at the end of the section, your depreciation should be calculated and there should be a refund generated as a result of this change
8. Repeat the same steps above to prepare your 2020 amended return.
9. Hope this helps.

@pryoung

[pryoung]

If you are saying my only option is to do amended returns, shouldn't I do 2018 in addition to 2019 and 2020 as RobertB4444 said?  I also am confused as to the Turbo Tax thread:

"What should I do if I didn't take depreciation on my rental property" which was updated on Jan 10, 2022 and shows "Solved" with explicit on completing Form 3115 as the option to use to change from an impermissible method to a permissible method and claim the depreciation on the current year tax return. 

You and Robert are shown as Employee Tax Experts so does that mean you are the trained experts in specific fields and the advice from others showing levels associated with their names are not employees but people sharing their knowledge? I have used TT for years but never come to the forums or requested advice. 

[RobertB4444]

@pryoung  I'm sorry.  In re-reading my advice I feel like I wasn't clear.

You WILL file form 3115.  You will file it with your 2018 tax return AFTER you calculate the total amount of depreciation that you didn't take for the prior years.  Form 3115 is going to allow you to take depreciation in 2018 and going forward.  So you need to file it.

What form 3115 does not do - and what I was trying to explain and apparently doing a bad job at - is allow you to go back more than three years and get the depreciation you missed out on.  That depreciation is just gone.  You will need to calculate it in order to get the starting point for where you're picking up in 2018 and it will be your jumping off point going forward.  

[pryoung]

Is my reason of changing from a non permissible method (no previous depreciation taken) to a permissible method (Depreciation under 168 MACRS using mid-month straight line method over 27.5 year life) valid and what I should state on Form 3115? What calculation do I use to populate the 481(a) adjustment to income in Part 4? The amount I will claim on the 2018 amended return depreciation? The total depreciation up to 2018? 

The thread I mentioned previously ("What should I do if I didn't claim depreciation on my rental property" dated Jan 10, 2022 which says "Solved" by TurboTax) shows step by step instruction on completing Form 3115.  It shows two options: one amended returns up to 3 years and the other a change in accounting method for the current year and going back as far as you need to go using Form 3115. I say this because I need guidance on how I need to  complete Form 3115  based on calculating all previous years but amending returns from 2018, 2019, 2020.  I assume I only file this Form once with amended 2018. Then file amended 2019 and 2020 and then current 2021.  

[LeonardS]

Since you have missed claiming the depreciation for multiple years now, the best option for you is to file Form 3115 Application for Change in Accounting Method.  This option would allow you to claim depreciation for all the years you have missed. 

Follow the steps outlined in the instructions to Form 3115: Application for Change in Accounting Method.  Ref: Instructions for Form 3115. 

On form 3115:

• On the line Tax year of change begins (MM/DD/YYYY) enter 01/01/2021
• In Part VI line Section 481(a) Adjustment line 26 enter the sum of  the depreciation that was not taken in all of the prior years
• Attach a depreciation worksheet as a supporting document your deduction

@pryoung

[MauryM]

Turbo Tax is so awful...

How do you know where to even enter a garage door?

Is it "rental real estate property"  is it "equipment" is it "intangibles, other property"?  Is it "land improvements"?

These are the only options Turbotax gives you and I don't see how a garage door fits into any of them...

The instructions are clear as mud.  I want to depreciate it over the proper 27.5 years, but can't find where to enter the asset!

[JamesG1]

If the garage door was installed at the rental property, at the screen Describe This Asset, I would select Rental Real Estate Property.

At the screen Tell Us a Little More About Your Rental Asset, I would select Residential Rental Real Estate.

The asset is depreciated over 27.5 years, MM MACRS Convention, SL Depreciation Method.

@MauryM