Forced rental property depreciation?

[odha1950]

I purchased a rental home in 2015 in which I made several major improvements to over my years of ownership and did sell the single-family home this past December. Since I was always in a very low Federal tax bracket, I did not depreciate nor expense my improvement costs (over $2500 each) preferring to wait until I sold the property to have my cost basis high and therefore making my capital gain smaller) 

   Unfortunately, when I try to declare the capital gain on the sale, Turbo Tax forces me to declare back depreciation for the years I did not opt in for that deduction. It appears the software is artificially altering my cost basis. That would make it appear that my cost basis is lower than what it should be. Is it possible to override forcing me to take all the depreciation for the 80k worth of improvements I made over the past 10 years with my largest being nearly 34k in 2016?  Am I missing something or making an error here?   Thx   

[ThomasM125]

No, you must factor in depreciation allowable when you sell the rental home. However, there is a way to deduct the prior year depreciation in the current year.

You have two choices in determining how you can claim depreciation that you failed to report in previous years. You can file an amended return for the effected years if allowed (you can only go back three years for this) or you can file IRS Form 3115 that will allow you to apply for a change in accounting method. If you file form 3115, you can report the missed depreciation in the current tax year.

If you decide to file Form 3115, be mindful that you can’t use this method for making a late section 179 expensing election, or to change the date an asset was placed into service, or to change the designated use of an asset.

On form 3115, you need to complete the entries on page 8 "Schedule E - Change in Depreciation or Amortization". In part I(a), the DNC code is "7", used to note a change in depreciation method from an impermissible method. You will need to complete the "Information for All Requests" on pages 1 to 3.

You can only prepare Form 3115 in the desktop version of TurboTax. You can find the form by entering the form number in the "Open Forms" box you will find in the Forms Menu. Here is a link to an article that you may find helpful: Reclaim depreciation missed in previous years .

You can use the Tax Tools option on your left menu bar while you are working on your return to then bring up Tools, which will have an option to Save your return to your computer so you don't need to start your online return over in the desktop version of TurboTax.

[mary_mackin]

Thomas is spot on. He describes the process of including prior depreciation perfectly.

Unfortunately, you are required by law to apply the depreciation to your cost basis upon disposition of a property. The IRS does not require that you report depreciation expense in your returns every year, but it will subtract depreciation from your cost basis when you sell. The software is keeping your from breaking the law by reporting incorrect cost basis.