Building Depreciation

[Ethics Plus]

I have a client that the previous CPA did not Depreciate the building that is owned by the company.  They have owned the building since 2017.  If I depreciate it now will it throw up red flags for an audit? 

[IRonMaN]

I think you kinda need to depreciate buildings.  Unless you are aware of your client doing kinky things with their tax return, why would you worry about raising red flags by doing the tax return correctly?

[abctax55]

"Ethics" would indicates one should do the return correctly, despite the fact the returns have been wrong in the past.  And 'red flag/audit risk" isn't some that should dictate the correct preparation.

Have you read up on Form 3115, and how to handle the situation ?

[BobKamman]

Seems like only yesterday I was saying, 

It has been a while since we have had a “short little man with a green eyeshade” question. That’s the imaginary IRS employee who would scrutinize such details.  

[TaxGuyBill]

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@Ethics Plus wrote:

I have a client that the previous CPA did not Depreciate the building that is owned by the company.  They have owned the building since 2017.  If I depreciate it now will it throw up red flags for an audit? 

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Was it depreciated in 2017 or 2018?

If not, you can't just start randomly depreciating it now.  You need to file Form 3115, which does two things: (1) it allows you to start depreciating now, and (2) it allows you to 'catch up' on the missed depreciation that was not taken.

If it WAS correctly depreciated in 2017 or 2018, but then sometime after that the tax preparers stopped depreciating it, you need to claim depreciation now.  And you can ask the client if they want to hire you to amend the prior tax returns to claim depreciation.

[Ethics Plus]

Thank you, for the information.  

[BobKamman]

Less than a week before the extended due date of the return (and of Form 3115, if filed) I would continue using the impermissible method for 2024 -- that is, I would not claim any depreciation -- and plan on resolving the situation with the 2025 return.  

No one goes to Leavenworth for doing that.  IRS certainly couldn't make an audit adjustment, demanding that the taxpayer claim depreciation.  

Of course, we don't have any idea how many dollars are involved here, either in deductions or in taxes.