How to claim catch up depreciation on a property that has never been depreciated since purchase?

[nelsonfn]

@nexxn958 Did you ever get an answer to this? I have the same question.

‎June 27, 2020 8:48 PM

 

After adding the rental asset in Turbo Tax, how do I answer the step "Confirm your prior depreciation" step ("Amount of depreciation taken in prior years (not including any section 179 deduction or first year special depreciation allowance deduction) ")? Should the amount entered be $0 (since no depreciation was taken in prior year's returns) or should it be the 481(a) adjustment amount per Form 3115 (accumulated depreciation omitted)?

[nelsonfn]

After adding the rental asset in Turbo Tax, how do I answer the step "Confirm your prior depreciation" step ("Amount of depreciation taken in prior years (not including any section 179 deduction or first year special depreciation allowance deduction) ")? Should the amount entered be $0 (since no depreciation was taken in prior year's returns) or should it be the 481(a) adjustment amount per Form 3115 (accumulated depreciation omitted)?

[MarilynG1]

@nelsonfn When you enter your Rental Property info, based on the Cost, Date you Started Renting, etc. TurboTax will generate an amount for Prior Depreciation based on that (whether you actually claimed it or not).  

Don't change that amount or enter $0. 

This year's depreciation will be added to your Rental Expenses. 

Click this  link for more info on Rental Depreciation. 

[JPRIMAS001]

I was unable to get turbotax to correctly complete the section 481 adjustment.  I ended up paying someone to do it.

[Anonymous]

Hello, @Critter super helpful thank you!  I've done all the calcs, and added the previously unclaimed depreciation as an 'other' expense line item on F8825 (it's a partnership return).  By any chance do you have thoughts on how this would impact the state return (ours is for a Virginia partnership)?  I don't see a state-level equivalent of F3115 but it looks like Ttax simply flows through the new higher Federal rental expense amounts onto the state return.  Could it be that easy?  Thank you!!  

[nexxn958]

@nelsonfn Not in time for me to file last year. Looks like someone just replied after your message.

[7dSEypIc30]

I am in a similar situation where I have couple investment properties with missing depreciations.  Following a similar advice I did an amended return for 2019, but later realized that I should be doing form 3115 instead along with my 2020 tax returns.  After some reading (including this forum which was very useful) I am ready to submit 3115 with my 2020 returns (claiming all missing depreciation through and including 2019), however not sure how to handle the amended returns for 2019.  I sent it over a month ago but IRS still does not have any information on this.  I am inclined to just go forward with my 2020 return (including form 3115) .  As I understand there's no way to cancel the amended return once you sent it to IRS, does anyone know how to best proceed?  Thanks all! 

[DavidD66]

No, you can't cancel your amended return.  During normal times, an amended returns usually takes six to eight weeks to show up in the IRS system.  It's now taking up to a year, or more for amended returns to be processed.   I would go ahead and file 2020 with Form 3115 (remove depreciation for 2019).  I would also explain that you amended 2019 before you realized you could file form 3115.

[7dSEypIc30]

Thanks for responding.  I did my amended return with turbo tax online, and after searching around I found that there is an option to cancel it from there.  I canceled yesterday, hoping that's all that's needed for that.  Best,

[2yuexue]

Extremely help information.  I do have a question though.  The catch up amount didn't carry to Schedule E on the other expense. How did you make that part to work?  Thanks!

[7dSEypIc30]

You just need to manually enter new line in 'other expenses', can call it something like: 'Catch up depreciation expense, form 3115' 

[jessicadias123]

hi do you have form 3115 incorporated into your software? thanks

[PatriciaV]

Unfortunately, Form 3115 is not supported for e-filing with a Form 1040 return using TurboTax. You would need to mail in the form with Form 8453 Tax Transmittal. These forms are available in the CD/Download version of TurboTax or from the IRS Forms site.

[softpaws]

Wow! Doesn't this thread just perfectly illustrate the idiocy of our tax system? As I've scrolled through these three pages I've felt for the posters who are struggling to get a simple, straight answer - use the 3115 form,

don't use the 3115, call a professional, I did and none of the professionals have heard of the form, the language is not user friendly on this form, send in amended returns, did Turbo Tax do this right - it just deducted the full $80,000, and on and on and on.

This is nuts!

Who's got time for this? The amount of time a person has to spend on just trying to understand the correct way to file our taxes is criminal. We ought to be able to charge the government an hourly rate for every hour we must spend to translate and comprehend this quagmire.

And there's no certainty it's done right, is there?

I have three rental properties. Going back over my returns from 1998 to 2020 during which time I have paid two different CPA's and one enrolled agent, or used Turbo Tax or done my taxes myself using paper forms here's what I found for just one rental property on these tax returns:

Some years there was no depreciation claimed for this property.

The cost basis to calculate the depreciation is different on several returns.

The amount of depreciation is not the same throughout the years it's been a rental.

Last year the enrolled agent who charged me $600 didn't include the depreciation on this one rental. He also didn't send any notes or summaries as to how he got the figures he got. He just scanned in the forms of my return and sent me a PDF.

Today I'm writing a very hefty check in the five figures to the US Treasury - an amount that would cover the cost of three dental implants and minor dental surgery that I can not afford because my savings is going to taxes - and I'm grinding the teeth I have left as I write the check, which I'm not even sure is for the correct amount!

Too much? Too little?

I wish we were a country of empowered citizens who demanded a more just and equal tax system, a system that the average person could navigate with ease, pay our fair share and see the results of prosperity and peace for this annual investment we all must pay. Well not all - the multi-millionaire class don't hang out in a Turbo Tax thread because they pay very little taxes in comparison and don't waste their precious time worrying about it.

[sp1viper]

Thank you so much for this! Really great help @Ethereal !

I will be submitting an attachment with the details along with Form 3115 just as your examples (of course with my property information : D) .

And yes, will be mailing it with Form 8453.

Now a quick question if someone can help:

For 2 properties that I missed depreciation on, I am assuming I fill out two separate 3115 forms in the same year,  and send them separately?

[HopeS]

You can use the same Form 3115 for the two properties.

In general, you can only make a change in accounting method to catch-up on missed depreciation or change depreciation that was calculated incorrectly.

Note: Form 3115 can’t be used for making a late section 179 election, changing the date an asset was placed in service, or changing the use of an asset.

Form 3115 is a multi-page form, but the part that pertains to catch-up depreciation is found on page 8, Schedule E - Change in Depreciation or Amortization. In Part I(a), the DCN code is “7” to indicate a change in the depreciation method from an impermissible method to a permissible one. You also need to complete the Information for All Requests on pages 1 to 3.

You can only prepare Form 3115 in TurboTax Desktop, and you must be in the Forms Mode to prepare.

@sp1viper