Rental property basis

[Consolidator]

How do I adjust the basis of a rental property?

A client began renting his personal condo in 2015. At the time, I used the lower of his cost and the FMV of the property as the basis for depreciation. In his case it was his cost. The problem is that by mistake I have been depreciating the whole amount (I didn't subtract the value of the land).

Thank you!

[George4Tacks]

Add another asset with a code 99 for Land, which is not depreciated but will be on the depreciation schedule.

[itonewbie]

Your client has adopted an impermissible method of accounting.  To change that, you'll need to file a F.3115 and a §481(a) adjustment will need to be made.  With the correction made, you'll then add an asset for land as George suggested and adjust what you have for the building.

[BobKamman]

Is this a $100K condo, or is it worth $1M?  Is the client in a 15% bracket, or 35%?  Has there even been any tax benefit from the excess depreciation, or is he at zero tax anyway, or with a carryover loss because of higher income?

If you question is "What is required to follow the letter of the law?" see @itonewbie .  If your question is "what will happen if I just start doing it the right way now?" the answer could be "not much."

“If the law supposes that," said Mr. Bumble, squeezing his hat emphatically in both hands, "the law is a ass — a idiot. If that's the eye of the law . . . the worst I wish the law is, that his eye may be opened by experience — by experience.”  --From Oliver Twist, by Dickens