You should allocate the depreciation recapture the same way you reported the income and expenses for the rental property? Did you report on a Form 1065 Partnership return. If so, you file Form 3115 with the 1065 and the depreciation recapture is allocated via the K-1s. If each of you reported a third of the expenses on their personal tax return, each of you will need to report the sale of a third of the property, and would file their own Form 3115 if necessary. You would each have your own depreciation recapture as part of reporting the sale.
Three of us co owned the property for 4 years before selling it. I was the only one who collected the rental incomes and reported rental expenses for those 4 years.
Is it true that I am the only one who need to file Form 3115 and should claim all depreciation recapture because I reported all rental incomes and rental expenses for those 4 years?
Also noting that each one of us received Form 1099-S with 1/3 of sale proceeds.
It may be best to have a tax professional help with all of the tax returns. There are several variables and we don't have all of the information.
Based on your information you could report the 3115 on your tax return to include all depreciation expense that was never used. However then the recapture of all the depreciation will and should be done on your tax return because you will reap the benefits of the deduction and therefore add back that portion of the income as recapture up to the amount of gain.
It's quite involved to accurately report the sale because depreciation is considered allowed or allowable (use it or lose it). The meaning of this is whether you used it or not when it was a rental property, you will recapture it when it is sold.
Simplified, calculate the depreciation for all years, divide it by the number of owners (yourself and siblings). Report a Sale of Business Property and list the appropriate figures as noted below on each tax return.
Sale of Business Property:
Since you didn't take depreciation you could enter only one third of the cost basis for the rental as an asset (and use that for Form 3115), then enter your sale through the rental property asset.
Chart for 27.5 year residential rentals.
[Edited: 03/26/2025 | 9:13 AM PST]
I was the only one who managed the rental property and reported rental activities on my returns. My two sisters never collected rent or reported any rental expenses on their tax returns. I was the only one who did that.Do they need to file form 3115?
Only you need to request to change your accounting procedure since only you kept records of the rental.
Only you need to recapture the depreciation on your tax return. Your sisters never used the expense on their returns. For this reason they will have no recapture.
Thank you. My father never claimed the depreciation from 2014 until he quitclaimed the property to three of us in 2020, and I understand that we have to report depreciation recapture far back from 2014 until we sold the property in 2024. If we file form 3115, how far back can I claim missed depreciation? From 2014 until 2024 ?
Yes, you can claim all missed depreciation that was not used on a tax return in the past (2014-2024). This information is a helpful record for you and you can print or store the 27.5 year MACRS chart for your tax records.
So if I would recapture all of depreciation, should my sisters leave it blank or put zero on depreciation field when reporting sale of rental property on TurboTax ? It is legal to do so?
If the property was being used as a rental starting in 2014, but you and your sisters did not get ownership until 2020, the basis for each sibling would be the Fair Market Value on the date you each gained ownership less the depreciation taken (or should have been taken) up until that time.
If you then continued to use it as a rental, your basis will need to be adjusted for the depreciation you took or should have taken. Base that depreciation on your basis, which would be one-third the Fair Market Value when you gained ownership less one-third the deprecation for 2014-2020.
The depreciation for the period before 2020, if at that time it was only owned by your father, would have been based on the cost value/basis of the purchase price your father paid or the Fair Market Value on the date the property was put into service, whichever was less. Since you did not own the property, you reporting the Schedule E was not quite the proper way of reporting the rental activity. If you did not own the property, you could not have claimed the depreciation at that time. Technically, your father should have been claiming the rental until 2020. You could have reported income for managing his rental.
So for example, if the Fair Market Value on the date you and your two sisters gained ownership was 325,000 and 25,000 depreciation should have been taken from 2014-2020, you each would have an adjusted basis of 100,000.
If you rented it out from 2020-2024, and should have taken 15,000 depreciation, your adjusted basis for the sale would be 85,000 and your sisters' would be 100,000.
What would be the property date of service?
The date my family bought it in 2014 ( my parents and my two sisters and me co owned and put the property on the service in 2014 )
or the date my parents quitclaimed their shares of the property to three of us in 2020?
Your date of service for this property would be the date that the ownership was transferred to you.
We are filling out Form 3115 for my rental property that I sold in 2024. My dad managed the property from 2014 until 2020.
Then I started managing the property since 2020 when he quitclaimed it to me and my two siblings until we sold it in 2024.
What “ tax year of the change begins and ends” should I use on Form 3115? I thought it should begins from 01/01/2024 and ends 12/31/2024. But my accountant wants to put it from 2014 to 2024. He said it should cover my dad’s period of management of the property as well!
Yes, you should use the full time it was a rental property (2014-2024) to accurately capture the correct depreciation and change in accounting.
We are working on section 481(a) adjustment.
My accountant and I have different thinking.
We have a net negative adjustment, but we can not be sure “ Yes “ or “ No “ answer on question 28 that asked “ Is the applicant making an election to take the entire amount of the adjustment into account in the tax year of change? “
I need help clarifying the meaning of this question and the answer “ Yes “ or “ No “ for this question.
Thank you.
Because you never claimed depreciation in the past, you are now electing to claim an adjustment equal to all prior depreciation. And you are making this adjustment this year, which is the year of the change.
If you were amending last year's return and reporting some of the adjustment on that return, you would answer "no" to this question.