Depreciation

[Christine Hope]

I own 50% of a house and bulding  bought in Oct 2017 and rented since Nov 1, 2017, We have never claimed depreciation. I would like to amend my 2020, 2021, and 2022 returns to include depreciation and then claim depreciation in the future. The purchase price of property was 210,474. the value of the land (from the 2018 tax bill= 71,330) I used 139,144 as the cost basis for building and house. 139,144 divided by 27.5  would be  5,059.78  

1/2 depreciation for one year would be $2,529.89     Is that correct for 2020 for a property purchased in 2017?

[Anonymous_]

Unfortunately, it is now too late to amend those returns since you used an impermissible accounting method by not taking depreciation deductions for two or more consecutive tax years.

As a result, you need to file Form 3115 and make a 481(a) adjustment.

See https://www.irs.gov/instructions/i3115#en_US_202212_publink100035791

You will most likely need to use a tax professional for this purpose.

[Christine Hope]

I believe you but I have talked to two tax professional who suggest filing amended returns for 2020, 2021, and 2022.   I have yet to find a professional who can file Form 3115 . 

If I do amend the returns will TUrbotax use the correct  depreciation amount  assuming I have filed since 2017 or do I need to do my own math.

I am willing to try filling out Form 3115 if I must but would love someone to make available an example of a very simple depreciation for a single house rental

[Anonymous_]

You can try the Assisted or Full Service options with one of the online versions.

https://turbotax.intuit.com/personal-taxes/online

[Anonymous_]

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@Christine Hope wrote:

I believe you but I have talked to two tax professional who suggest filing amended returns for 2020, 2021, and 2022.   I have yet to find a professional who can file Form 3115 . 

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You apparently have not talked to professionals who are familiar with the procedure; amending the returns will not work in this instance.

See https://www.irs.gov/publications/p946#en_US_2022_publink1000107385

Adoption of accounting method defined.

Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns.

[Christine Hope]

I understand that I need to file or have a professional file form 3115 since depreciation has not been taken on a rental property.  I am trying to decide if it is worth it.

The rental property was bought in Oct 2017 and rented continuously since that time.  THe value of the house and improvements is 52,570.   I think that means that we should have taken $1,911.64 in depreciation each year.  Does filing the Form 3115 means that we will get back $1,911.64 for 2018-2022?

SIncerely,

Hope Stanton

[Anonymous_]

@Christine Hope 

You will get a deduction for that amount, but you won't "get it back" in terms of a refund (if that's what you mean).

[AmeliesUncle]

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@Christine Hope wrote:

I am trying to decide if it is worth it.

 I think that means that we should have taken $1,911.64 in depreciation each year.  Does filing the Form 3115 means that we will get back $1,911.64 for 2018-2022?

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Let's say you are in the 22% Federal tax bracket and the 7% State tax bracket (29% total).  A deduction of $1911.64 would result in approximately $554 in refunds/less tax owed (although the decreased income could affect other things, potentially saving more).

However, you technically are NOT allowed to claim depreciation in FUTURE years unless you file Form 3115.  Are you 'stuck' with not claiming depreciation until that form is filed.   So you would be continually missing out on the depreciation deductions every year unless you file the Form 3115.

[Affordabletaxes2021]

Regardless of whether you take depreciation deduction you will still need to recapture the depreciation that should have been taken when you sell the property.

[Christine Hope]

I am having a CPA file the 3115 form. If the expenses associated with the rental property are greater than the income received in the year the 3115 form is filed what happens?  Can the additional income be added to expenses for 2024?

For example:

Rental property  

INcome $18,000

Deductions  (Taxes, Insurance, Maintenance and repair)   $6,000

Depreciation   $13,000

IN this hypothetical case I would have $1,000 negative value for income for the property for 2023. Property  rented Nov 2017

[Anonymous_]

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@Christine Hope wrote:

IN this hypothetical case I would have $1,000 negative value for income for the property for 2023. Property  rented Nov 2017

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Under typical scenarios for residential rental real estate, there would be a $1,000 passive loss which could be used against passive income or, if none, then the $1,000 passive loss would be suspended.