Section 481(a) adjustment not flowing to 1065/8825

[Sirius]

Hi Friends,

Just started working on a rental 1065 Return and it looks like the previous tax professional misclassified a roof replacement as "flooring" in 2022. Fortunately, the business was started in 2022 and the mistake was caught early. However, I know I need to enter a 481(a) adjustment to increase income on the 1065/8825 to account for the "over-depreciated" asset.

Form 3115 is now successfully printing for me and has Part IV 481(a) complete, however the increase in income is not flowing to the 1065/8825. I tried filling out other parts of the form and read through each question to make sure I wasn't missing something. I'm sure I am though.

Anyone have any ideas?

Thanks!

[abctax55 · Accepted solution]

F.3115 is informative - the calculations don't flow anywhere.

Enter the adjustment manually on the F 8825

[Sirius]

This is very helpful. Thank you!

[abctax55]

I'd enter  it a as negative under other expenses.

I wouldn't adjust the rental income.

But - that's just me 😉  YMMV

[rbynaker]

Wouldn't an error in 2022 just get amended? (Or however partnerships get adjusted these days.)

I think it takes 2 years of "error" to be considered a method.

Rick

[abctax55]

D'oh..... Rick, I think you're right.

And partnership amendments are that AUR (?) routine and depending on the election that was made, the hit is absorbed by the partnership OR passed out to the partners.  My 'working knowledge' of the how is basically non-existent. 

[Sirius]

I can see an argument for both. Claiming more depreciation than allowable would trigger Form 3115. Whereas, a calculation or posting error would make the case for an amendment. As a note, the materiality of this change is $1,800. The business experienced loss in 2022 and 2023.