Rental property over depreciation

[sking10]

This is the first time I will be using Turbo tax to file my tax returns. Till 2023 my accountant has been filing the taxes and when entering data into turbo tax for 2024 I discovered that for one rental property that was purchased and placed into service in 2020, they used the Total Purchase price to claim depreciation against and I have been told that the depreciation should only be claimed against the building portion of the property since land cannot be depreciated. For the other rental property that was placed in service in 2021, they used a flat 80% of the purchase price which also doesn’t accurately reflect only the building portion of the property. How do I fix this? Do I need to file Form 3115 to explain the corrections and then use the correct values 2024 onwards without amending the prior years’ returns?

[MindyB]

Yes, since the incorrect method was done for 2 (or more) years in a row, that is now considered an accounting method.  The way to remedy this is to file a Form 3115, not filing amended returns. Form 3115 is due by the due date of the return that the accounting method change is being made for, including the extension.  

If you'd like to prepare a Form 3115, you'll need to use a Desktop version of TurboTax, and file your return by mail.

See: Application for Change in Accounting Method 

[sking10]

@MindyB  Thank you.

1. Can I still use Turbo Tax online and just download and complete form 3115 offline and mail it in?

2. Do I also need to file form 8453 separately?

3. When I calculate the over depreciation amount for each of the previous years, do I need to add that to the rental income for each respective rental property for 2024 returns in turbo tax?

[MindyB]

You are welcome.  

1. That is not recommended.  You can switch products here: How do I switch from TurboTax Online to TurboTax Desktop?

2. No, because TurboTax doesn't support e-filing of a return with a 3115.

3. No, it is not an addition to rental income.  It is a decrease in expense, which essentially gets you to the same place for net income.  When you have an unfavorable difference, you can spread the addback over 4 years instead of 1 (481(a)).  

[sking10]

@MindyB @Thanks again.

For #2, when is the form 8453 required to be filed?

For #3, just to be sure if the total over depreciation is $4000 in the previous years, are you saying add $1000 to the rental income for 2024 taxes and then $1000 each for the next three years?

[DianeW777]

Please see the answers to your questions.

1. -#2: This form will not be filed when you mail your tax return. If you do e-file (assumes Form 3115 is not completed) and if Form 8453 is required, it will be mailed within three days after acceptance of your e-filed return by the IRS. It's important not to delay the filing of 3115 which must be accompanied with your Form 1040 in the year of the change.
2.  #3: Yes, that is what is being said. The unfavorable difference can be spread over four tax years. (IRS Section 4.11.6 Change in Accounting Methods)

@sking10 

[sking10]

@DianeW777 Thank you again. Just to confirm my understanding. Use Turbo Tax desktop version to e-file 2024 taxes along with e-Filing Form 3115 and I do not have to submit form 8453 at all in that case?

[DianeW777]

The federal return may not e-file with Form 3115 because it is not supported for e-file through TurboTax. You can try to e-file and then attach Form 3115 to Form 8453 as an attachment, if your return gets accepted. I see where the confusion is and apologize for that.

If you have more questions, please update here and we will help.

@sking10