3115 missed depreciation

[jbrown16326]

I am doing past tax returns for a client 2019-2020.

Client had rental property since 2012 but doing her own taxes did not take any depreciation.

i would like to take it in 2019, but she sold the property in 2020 and would benefit more by filing the 3115 in 2020 instead of 2019 (the first year of discovery technically). My preference would be to offset cap gains on the sale of the house.

Can she claim depreciation in 2019 and then file the 3115 for 2020 to take missed depreciation.

Or does she have to file the 3115 for 2019 for the first year of discovery?

[IRonMaN]

"Can she claim depreciation in 2019 and then file the 3115 for 2020 to take missed depreciation."

I don't think that is the way it works.  I think you want to do it with the 2019 return.

[Terry53029]

Are you doing 2019, and 2020 that she did not file or are you amending those two years. If 2019 has not been filed, then like ironman said, you should file the 3115 for that year. If you are amending (because of missed deprecation) then I would just amend 2020, and do the 3115 for 2020.

[jbrown16326]

Thanks for your input. 

Would it be ethical to just not take it in 2019 and file the 2020 with the 3115?

Client hasn't filed a return since 2016. We are just filing for compliance and bankruptcy.

[IRonMaN]

You are signing the return.  Are you comfortable signing a return that you know is not correct?

[rbynaker]

I'm no expert (I can count on one hand the number of these I've filed) but I thought the 3115 had to be filed with a timely filed return?  Maybe @TaxGuyBill knows.

From the instructions page 2:

Attach the original Form 3115 to the filer's timely filed
(including extensions) federal income tax return for the year of
change.

But maybe this will help?:

Late Application
In general, a filer that fails to timely file a Form 3115 will not be
granted an extension of time to file except in unusual and
compelling circumstances. See section 6.03(4)(b) of Rev. Proc.
2015-13 and Regulations section 301.9100-3 for the standards
that must be met. For information on the period of limitations,
see section 5.03(2) of Rev. Proc. 2023-1.

[IRonMaN]

Good point😊

[TaxGuyBill]

I agree with Rick - you can't claim ANY depreciation.

The usual rule is that it must be on an original, timely filed return.  For disposed property there is an exception and can be done on an amended return within the three year limit, but that doesn't apply in your situation.

As weird as it sounds, I don't think you can even claim any depreciation for 2019 or 2020 because you are not allowed to without a 3115.

But that makes me wonder ... if you have no way to claim depreciation for 2019 or 2020 (you are not allowed to), then maybe that doesn't lower Basis?  I never thought of it until now, but that would be interesting to research.

[jbrown16326]

Thanks for that catch. I thought I had thoroughly read the instructions. I have never actually filed a 3115. Thanks for everyone for weighing in on this issue for me!!!

[jbrown16326]

Well, the depreciation is "allowed or allowable" so I understood that meant that the basis lowers whether you had the know how to claim depreciation or not.