Depreciating a piano

[hntrust]

A piano was purchased in 2011 while a student. In 2014 I began performing as a self employed concert pianist. I use the piano to practice and give lessons exclusively in my home office. So in 2014 I started using the piano to produce income. Depreciation was never taken in prior years. Can it be depreciated starting for 2019 and how do I do that in TurboTax Home and Business? Do I have to file amended returns or can I just not take the depreciation for years prior to 2019 and just start taking depreciation beginning with the 2019 return? I entered the information setting up the piano as a business asset in Home and Business. Where it asks what year I acquired the asset and the price I put 2011 and $32,000. Where it asks what year it was placed in service I put 2014. Then it calculated a depreciation deduction for 2019 as $12,800 which was transferred onto Schedule C.  I thought the program would generate form 4562 but it did not. Is that correct? Any guidance would be appreciated. Thank you

[JamesG1]

I entered a similar asset in TurboTax H & B and was able to view an Asset Worksheet (piano) and a Depreciation Report but no IRS form 4562.  The correct depreciation numbers did transfer to the IRS form Schedule C.

One choice is to amend previous year's tax returns but you can generally only go back three years.

IRS form 3115 Application for change in accounting method is the appropriate form to report depreciation not taken on previous years’ tax returns.  The form can be found in TurboTax H &B but it cannot be e-filed.

In TurboTax H & B,

• Click on Search / magnifying glass in the upper right hand corner of the screen.
• Enter '3115'.
• Click on 'Jump to form 3115'

[Carl]

So in 2014 I started using the piano to produce income.

Several things here.

First, you flat out can't use TurboTax to file or amend a tax return prior to 2016.  That's because TurboTax only supports their software for the current tax filing year and three years back. So even if you get the program for 2014/2015 you will not be able to get the "REQUIRED" corrections and critical updates for it, and TurboTax will NOT honor their 100% accuracy guarantee on the 2015 program or earlier.

Second, if amending a return prior to 2016 shows that you get additional refund money, the IRS will not pay it. There's a three year statute of limitations on refunds. But if you owe the IRS, you are required to pay it regardless of how far back it is up to 10 years. Any additional tax owed has to be paid with interest too.

Third, since you started producing income in 2014 that means you would have reported that business income on SCH C as a physical part of your personal 1040 tax return. If you haven't be depreciating the piano since then, that's a problem that "you" can't fix by yourself.

Because it's been 6 years that you've been self-employed and using the piano as an income producing asset that you did not depreciate but should have, you need to include IRS Form 3115 - Adjustment to Accounting Method, with your 2019 return to correctly fix this.

The 3115 is "NOT" simple by any stretch of the imagination and requires professional help. That's why TurboTax does not include the 3115 with any version of the program. This is particularly important if your state also taxes personal income. So please seek professional help from a licensed, qualified, certified CPA that is legally licensed and registered to operate in  your state.

[Anonymous]

actually desktop deluxe handles the 3115.  but I agree it's not that simple.  one other problem he has. bought in 2011 but did use it in business until 2014. that means his tax basis for depreciation is the lower of his cost or fair market value when he put it in service in 2014 

[hntrust]

Does Home & Business do the 3115?

[AmyC]

Yes, the 3115 is in home and business.

@Anonymous is correct that you must use the lower of price paid or fair market value at time of conversion.

@Carl is also correct that the IRS will not give refunds prior to 2016. To get a 2016 refund, you must file the 2016 amend by April 15.

[Carl]

Yes, the 3115 is in home and business.

Only that version? I ask for obvious reasons.

Also, just an opinion here. But that could come back to bite TTX on the accuracy guarantee claims. It still does not change the fact that the 3115 is not simple, even though it may look that way or be presented that way.  On top of that, if the state taxes personal income that doubles the chances of a double-whammy.  One should "always" get one-on-one professional help when dealing with the 3115 - regardless of how simple one may "think" or believe it is.

[AmeliesUncle]

For all of you that are saying Form 3115 is in Home and Business, the fill-in PDF version may be there (with no help from the program), but I highly doubt that TurboTax has all of the required attachments and calculations.  Assuming that is the case, effectively you CAN'T do it with TurboTax. Plus TurboTax can't do attachments so it would need to be mailed (and the 3115 is ALSO mailed to a SECOND address as well).

So if 3115 needs to be done to  'catch up' on depreciation, a person REALLY should be going to a tax professional.