Form 3115 to fix overclaimed deprectation - need input on the steps followed

[ayshakeen]

hi all, if you have experience with form 3115 would appreicate your help.
This is in context to a rental property which we started renting from last two years and since than the cost of property and land was written more than what it was ( current price was used vs what I bought it for). . This year while doing my own taxes I figured out the cost is incorrect so i reaced out to the tax preparer who did last two years and he helped prepare a form 3115. I am doing the rest of taxes myself for 2023 through turbo tax desktop version.

Anythign I am missing or need to do differently or update in tax prep software?

i have done the following:

1. I added the overclaimed deprecation amount in misc expenses.

2. I wil be e-filing while sending 8453, the form 3115, 3115 statement via mail.

3. I override the turbo tax deprecation field for that rental property and the value i put in is the difference of accumulated deprectation till 2022 and overclaimed deprecation. My tax refund reduced by ~50.

Thanks,

Aysha

[tagteam]

Just to make sure this is correct, you claimed too much depreciation for two consecutive tax years?

[ayshakeen]

Yes

[tagteam]

Note that you need to attach the 3115 to your return and also send a signed copy to the IRS (i.e., two separate copies need to be filed).

See https://www.irs.gov/instructions/i3115#en_US_202212_publink63215hd0e222

[tagteam]

If this is the case, as you stated, then why are you adding it as an expense?

It appears as if you should be adding the excess to income.

I'm going to page @AmeliesUncle for input here.

[ayshakeen]

What you said makes sense. It shoud be added in rental income than? 

[tagteam]

Yes. Do you have a positive adjustment on your 3115?

If positive, as I believe it should be, then that indicates you took too much depreciation and need to make a positive adjustment on the income side; it should not be added as an expense.

[AmeliesUncle · Accepted solution]

Using an incorrect Basis is not a method of accounting.   I'm sorry to tell you this, but Form 3115 does not apply.

It can only be corrected by amending.

[tagteam]

Good catch! 

I completely glossed over the fact that the adjustment was due to the use of an incorrect basis.