Rental depreciation

Forum|Forum|5 years ago
February 25, 2021
10 replies
40 views

New client. Sold a rental property during 2020. Prior accountant never claimed depreciation on Schedule E. Every year's loss (without depreciation) suspended because of the income limitation.

My thought -- file Form 3115 to correct the missing depreciation expenses AND add them to the suspended PALs. Is this ok?

ProSeries Professional

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T

TaxGuyBill

@Primobabe wrote:

My thought -- file Form 3115 to correct the missing depreciation expenses

AND add them to the suspended PALs. Is this ok?

Yes.

No, the §481 adjustment from Form 3115 will go on Schedule E as an "other" deduction.

BobKamman

Level 15

Just don't expect anyone at IRS to look at the 3115. I don't think that is an appropriate form for changing from an unacceptable method to an acceptable one, but I don't want to get into an argument with the Accounting Police.

sjrcpa

Level 15

I've had them looked at occasionally.

The more I know the more I don’t know.

BobKamman

Level 15

Must have been back when IRS had extra people sitting around with little to do. What is being proposed here is a retroactive change, I suppose under the "automatic" procedures. But IRS has said "In the Government’s view, it is in not in the interest of sound tax administration to permit taxpayers from requesting, or otherwise making, a retroactive change in a method of accounting, whether the change is from a permissible or impermissible method."

If the taxpayer had kept this rental, the 3115 would be needed to start depreciation in 2020. But since it was sold, there is no going back. The gain includes recapture of depreciation that was allowable even though not claimed. The carryover losses are those that exist without depreciation. The former tax preparer is liable for the additional taxes.

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