Depreciation Amount for Rental Property

[Ed McCauley1959]

I constructed a chart depicting the Depreciation amounts deducted each year since purchase of this rental property in 2008.  I discovered that I had used a much lower Prior Depreciation amount in 2015. I should have used $31,284, but for no discernible reason, I entered $25,810, a difference of -$5,474. This error has propagated through all subsequent tax returns, and has not been questioned by the IRS.

What action should I take?

[Mike9241]

2015  is a closed year so you can not file an amended return. that leaves filing form 3115. Whether or not you want to attempt filing the form and correction on your own is up to you.  usually, this forum recommends the use of a pro.

if you do not correct the error, when you sell the property the tax rules require that you use the proper depreciation (ie 31K for 2015) when figuring your gain or loss.

whether you want to file the 3115 now or wait until the property is sold is up to you.

[Anonymous_]

@AmeliesUncle 

The prior years need to be amended to account for the proper depreciation deduction(s). Any refund due will not be paid for returns that are time barred by the statute of limitations (three years). Passive losses, however, may still be carried forward.

Form 3115 treatment is not available here since this scenario does not involve an impermissible method of accounting.

[SweetieJean]

It might not be wrong.  First, remember that you cannot depreciate the land.  Second, you probably used a "part year" method for depreciation for the initial calendar year of ownership.

[AmeliesUncle]

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@Anonymous_ wrote:

@AmeliesUncle 

The prior years need to be amended to account for the proper depreciation deduction(s). Any refund due will not be paid for returns that are time barred by the statute of limitations (three years). Passive losses, however, may still be carried forward.

Form 3115 treatment is not available here since this scenario does not involve an impermissible method of accounting.

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I agree, but I would change that prior years SHOULD be amended.

Also, for the current year "prior depreciation",  you should enter the LARGER of (a) what was ACTUALLY taken (including amendments) and (b) what SHOULD have been taken.

[Anonymous_]

I reread the original post and am now wondering whether the difference @Ed McCauley1959 is referring to is the accumulated depreciation or the actual deduction. 

The statement, "I had used a much lower Prior Depreciation amount in 2015" could be interpreted as having entered $25,810 as the amount of accumulated depreciation rather than the deduction for the year.

@Ed McCauley1959 needs to clarify the foregoing and there is also no indication as to whether TurboTax was used nor, if it was, the first year it was used.