Form 3115 - Catchup Depreciation amount not linked to Schedule E

[MPIEGARI]

Hello,

My client placed a rental property in service in Nov 2015 and sold it in Mar 2020.  No depreciation was claimed.  I completed form 3115 to catch up on depreciation for 2015 - 2019 and ProSeries is automatically calculating the 2020 depreciation up to the sale in Mar 2020.  However, the catchup depreciation from Form 3115 is not flowing through to schedule E "Other".  

Is there a manual step I need to complete to link the 3115 adjustment amount to schedule E?

[sjrcpa]

You have to enter it as a 481(a) adjustment  (expense) on Schedule E.

[MPIEGARI]

Thank-you for your response. So I manually enter the adjustment amount on schedule E under other expenses?

[abctax55 · Accepted solution]

Yes, you have to enter it as an "other expense".  Like Susan, I use "481(a) adjustment as the description.

[MPIEGARI]

Thank-you for your help!

Do you know if filing form 3115 is allowed in the year the rental property was sold? I have been seeing some conflicting information on this. Some say you cannot file in the year it is sold and others that say this rule does not apply to real estate rentals and it is ok.

[TaxGuyBill]

Yes, it can be done in the year it was sold.  But I think it changes to code "107" rather than "7" and has a few slightly different rules.

[MPIEGARI]

That is my understanding as well and I am using code 107.

For the questions that require you to attach a statement is a word document submitted with the 3115 referencing each statement fine? Or do I need to attach a note to each line item that requires a statement using the note feature in ProSeries?

[abctax55]

https://brasstax.com/shop/ols/products/form-3115-line-by-line-correcting-depreciation

Spend the $20, you won't regret it.

[MPIEGARI]

Thank-you for the recommendation!  I made the purchase and found some areas I needed to clean up on my original attempt.  It also helped create the attachments even though I am disappointed that they do not include an example where the property is disposed in the current year like my scenario.  One item left me puzzled though.  I am not sure about Part IV question 25 which states, "Does published guidance require the applicant (or permit the applicant and the applicant is electing) to implement the requested change in method of accounting on a cut-off basis?"  The training material indicates the answer is usually NO, but YES if the property is disposed. 

In my case, the property was disposed of in 2020, and selecting YES tells you to skip line 26 which is where you enter the 481(a) adjustment amount.   

Doesn't seem to make sense to enter YES in this box as a 481(a) adjustment is allowed in the disposition year.

Does anyone have any thoughts on this?