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Missed Adding Depreciable Assets in Prior Years. How can I add them?

Level 1

I have a new client where I discovered they paid for a large remodel that is on their books but was never added to their tax return depreciation table. This causes a problem not only for depreciation expense missed, but more importantly the properties basis is way too low based on the remodel they paid for. I would like advice on how others would handle this situation. They should get credit for the large remodel that was missed in prior years so that when they sell they don't have the incorrect gain amount. 


Just to clarify: Property A was bought in 2018 and was added to the tax return for depreciation and basis, Property A's large remodel (also in 2018) was never added to the tax return. How do we get the remodel on the tax return so the basis is correct. 

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4 Comments 4
Level 15

1) Amend

2) Look into F 3115 requirements

"*******Tax software is no substitute for a professional tax preparer*******
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Level 15

2018 can be amended.

"Level Up" is a gaming function, not a real life function.
Level 15

Has 2019 been filed yet?

Have you double checked if the remodel expenses were just combined with the purchase Basis, rather than missed?

How large of an amount is it?

Level 5

Basis is increased by the remodel and is reduced by depreciation allowed or allowable (so, the basis is reduced even if you don't take the depreciation).

To claim the depreciation, amend the prior tax returns or file Form 3115 (moving from an impermissible to a permissible method) and take a 481 adjustment (which allows you to claim the missing depreciation).