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If depreciation was never deducted then a Form 3115 needs to be filed correcting the depreciation which would allow the deduction of the combined years of depreciation in the current year. Then the sale of the house could be recorded using the correct accumulated depreciation. "Form 3115, Change in Accounting Method, is used to correct most other depreciation errors, including the omission of depreciation. If you forget to take depreciation on an asset, the IRS treats this as the adoption of an incorrect method of accounting, which may only be corrected by filing Form 3115."

Depreciation equals allowed or allowable; which everyone seems to realize. These seem to be coming up fairly frequently lately; perhaps because of the housing market. Did you set up a depreciation schedule for him ten years ago, when he first came to you? I would consider all aspects when deciding on the pricing.

The best $20 you'll ever spend: https://brasstax.com/shop/ols/products/form-3115-line-by-line-correcting-depreciation Add your cost to your invoice to your client. He should pay your $20 Research Fee.

Just go through the 3115 step by step. You only have to do it once. The total depreciation will be deducted only once in the tax year to be filed. It won't be that bad.

I've never done this, but recently walked through the process with a colleague (they did the work - I only looked up instructions and made suggestions). At first glance it looks complicated, but the process is fairly straightforward once you get the "allowable" depreciation calculation finished and determine the exact codes to use on the Form 3115. IMO, you should charge the client well for this work - if you haven't done this before it will require some intensive study, but the client will benefit greatly from your extra effort.