Higher basis used for calculating depreciation for 2017 and 2018 on residential rental property.

[pat]

Higher basis used for calculating depreciation for 2017 and 2018 on residential rental property on individual tax return. Losses allowed in both years. Taxpayer will be selling property in 2019 and does not meet the residency test. Do I have to amend past years or can I lower the basis and include all depreciation taken to calculate gain on 2019 return and include a statement disclosing the adjustment on the return when it is filed?

[George4Tacks · Accepted solution]

Are you stating that the basis shown on 2017 and 2018 was higher than the correct basis for the property? Was the property converted from residential to rental? Was Land allocated to the basis? 

I think the answer to your question is to amend the returns, since they are still open years. 

[pat]

Yes, the basis was tripled in 2017/2018 due to the Source field on a multi-state return not proforma'ing from 2016 to 2017 and Lacerte tripling the value. The previous tax preparer for TYs 2017 and 2018 did not notice the high value on the depreciation schedule. Be aware of this in Lacerte - the Source does not proforma and the values sourced then become the cumulative amount.

[pat]

Yes, land was allocated. It was converted from personal to rental in 2016, originally purchased in 2012.

[George4Tacks]

The solution is to amend 2017 and 2018.
I would have the client decide whether to go back to prior preparer to have it done and possibly pay any penalties or interest involved in additional tax due OR pay you to correct the errors and do the amended.  

[pat]

Thank you.