Rental property over depreciation

[PatriciaV]

Yes. Including Form 3115 with your complete Form 1040 tax return may avoid confusion when your submission is received by the IRS. Be sure your return is postmarked no later than midnight on the tax filing deadline (April 15, 2025) using the filing instructions included with your return.

[sking10]

@PatriciaV Thank you.  In case I file for extension, the extension applies to Form 3115 as well right?

[PatriciaV]

Yes, filing a request for an extension of time to file covers all forms that are related to your filed return.

[sking10]

@DianeW777 

I have one clarification on the over depreciation amount. If the amount of over depreciation in the prior years (2020 through 2023) is $14,000, to offset this what do I need to do?

1. Add $14,000 to the Rental income for 2024 or

2. Reduce my carryover losses from prior year by $14,000 or

3. Add $14,000 as other income on 1040 which increases my AGI and impact the refund amount?

I have never taken the benefit of any losses on form 1040 in any of the prior years and my rental property has always been in a net loss in each of the prior years.

I am thinking this is the guidance that applies to my situation but I am not able to fully understand what income is being referenced here. "A net positive IRC 481(a) adjustment increases income and is often referred to as a "government-favorable" adjustment. A net negative IRC 481(a) adjustment decreases income and may be referred to as a "taxpayer-favorable" adjustment."

[sking10]

Can any expert please respond to my latest question?

I have one clarification on the over depreciation amount. If the amount of over depreciation in the prior years (2020 through 2023) is $14,000, to offset this what do I need to do?

1. Add $14,000 to the Rental income for 2024 or

2. Reduce my carryover losses from prior year by $14,000 or

3. Add $14,000 as other income on 1040 which increases my AGI and impact the refund amount?

I have never taken the benefit of any losses on form 1040 in any of the prior years and my rental property has always been in a net loss in each of the prior years.

I am thinking this is the guidance that applies to my situation but I am not able to fully understand what income is being referenced here. "A net positive IRC 481(a) adjustment increases income and is often referred to as a "government-favorable" adjustment. A net negative IRC 481(a) adjustment decreases income and may be referred to as a "taxpayer-favorable" adjustment."

[DianeW777]

Yes, add the excess depreciation allowed to the rental income in 2024.  The carryover passive activity losses (PALs) will automatically be reflected because it will offset any income from the rental in 2024.  This seems to explain the 'tax favorable' adjustment they refer to.

It was used to reduce your rental income, therefore it should increase the rental income. It is used in the same location of your return which is Schedule E, rental income.

@sking10