Depreciation recapture related to renting out a room of my personal residence.

[pattysamsel63]

I need to do back years taxes for 2020 or 2021, and I need to know when depreciation recapture will occur because rental activity stopped partway through 2020 due to the pandemic.  BTW, I will not owe taxes as my only income source, other than the rental activity I explained, is nontaxable income. If I rented for the latter half of 2019 and less than half of 2020, and the house has not been rented since (currently 9/25/22), when I file back taxes for 2021 do I have to report depreciation for 2021 when not rented if I do not know if I will rent again, and what if I do begin renting again in 2023? Can there be a 2 year gap in reporting depreciation, or do I have to keep reporting depreciation for that room even for non-rental years - so far 2021 and 2022? Does depreciation recapture occur in 2021 since it was not rented in 2021, or does depreciation recapture wait until I sell the house which is when depreciation recapture normally occurs when rental property is sold?  I read something vague somewhere that indicated it could happen when rental property went out of service, but this house normally has not been rental property, and is not currently.  However, it seems unfair if the IRS expected to claim depreciation recapture for years and years after I was no longer renting the room, thus not claiming depreciation for those years. If I do resume renting out a room in 2023, how will that affect when I did/did not and/or should/should not depreciate the room, and when depreciation recapture occurs? 

[Anonymous_ · Accepted solution]

You used an impermissible method of accounting in two or more consecutively filed tax returns as a result of not claiming depreciation deductions and would have to file Form 3115.

See https://www.irs.gov/publications/p946#en_US_2020_publink1000107386

Get assistance from a local tax professional.

See https://taxexperts.naea.org/listing/service/individual-tax-preparation

[pattysamsel63]

My plan was just to amend the return, and since I bought TruboTax Premier I can still do that. Will that process include filing Form 3115, or will it replace filing Form 3115 and still be sufficient? Someone had told me I could just amend the taxes. 

[Anonymous_ · Accepted solution]

The preparation of Form 3115 typically requires professional intervention. 

Desktop versions of TurboTax include Form 3115 but it must be completed in Forms Mode. Further, a separate statement with the depreciation calculations must be attached to the return. 

[pattysamsel63]

I had purchased TurboTax Premier online for 2019 taxes.  I was on the phone with someone from TurboTax last week who knew it was the online version, and I was told I could that since it was within 3 years I could just amend the taxes to account for the depreciation. I can't recall if I was supposed to download something. Would that work? I ask this because I do seem to recall reading something which mentioned using a special form to correct for failure to depreciate, but it also indicated I would not have to file the form if I amended the taxes within 3 years. Also, I actually know I won't owe taxes, so I did not actually file 2020 taxes even though I knew I eventually would. I have purchased the desktop premier version for 2020, so I really won't have to amend or file any special form for 2020, but I did not want to complicate the question. I'm just trying to figure out how to do it right. I also never expected to make a profit when renting, was really just trying to offset expenses, and I only rented a portion of each year, although continuously. Am I required to depreciate regardless of if I rent for profit or do not rent for profit. I don't know that perhaps in the future I might not begin to make a profit, but I believe even if I rent the entire year I will be unlikely to make a profit due to expenses. 

[Anonymous_]

If you have a not-for-profit rental, you really do not need to bother with much of the foregoing with the notable exception that your expenses cannot exceed your income (i.e., you cannot recognize a loss).

[pattysamsel63]

Thank you. So I have no other reportable income, due to the type of disability income I receive, thus it is really okay that I can only deduct expenses from rental income. If I rent out a room not-for-profit, can I carry forward losses to future years I might have a rental income - for instance if I resume renting in 2023?

[Anonymous_ · Accepted solution]

There are no losses to carry forward on a not-for-profit type of rental scenario.

[pattysamsel63]

That simplifies things. Thank you.