Incorrect cost on rental property

[ILLMAS]

How do I correct rental property that was supposed to be depreciated only 50% from 2003 to 2016?  I have a new client and the prior preparers have been taking 100% of the total cost, property was bought with another family member and each is supposed to report 50% of the rental income and expenses? 

Thanks

 

[Lee B]

Classic example of when to use a 3115 to correct the depreciation expense claimed.

Since this will increase tax due,I believe you still get a 4 year spread forward to pay any additional tax.

[Catherine]

Yes, Form 3115 is required.  It's a royal PITA - but FAR better than amending all those returns and having late payment penalties.

I don't recall about the four-year spread - but if not, an installment plan does almost the same thing.

[Lynn EA USTCP in Louisiana]

Yes, if there is a positive adjustment, if the amount is under $25,000 (I think that is the magic number) taxpayer may elect to include it in one year, otherwise spread the 481(a) adjustment over 4 tax years. This is in the 3125 instructions 

[ILLMAS]

Thanks everyone, I am probably going to send the client back to prior preparer(s) to correct the depreciation for the prior years, but for 2017, can I just use the correct percentage ownership of the building therefore making the 2017 depreciation correct?  And also use the accumulated depreciation balance as my starting basis for 2017?

[Lee B]

1 hour ago, ILLMAS said:

Thanks everyone, I am probably going to send the client back to prior preparer(s) to correct the depreciation for the prior years, but for 2017, can I just use the correct percentage ownership of the building therefore making the 2017 depreciation correct? 

Can you do that ?  Don't you have to file the 3115 with the current year return ?

[Lynn EA USTCP in Louisiana]

Amending the prior returns (via the previous preparer) is NOT the right way to do this.  Do the form 3115 .  Just . do . it .......

[Catherine]

Really, just do the 3115.  It takes into account ALL the prior year errors.  Put in your depreciation schedule for accum dep whatever the RIGHT number should have been.  All the corrections are on the 3115 (except for adding the correction onto the Sch E).

[Gail in Virginia]

The 3115 can be a bit daunting at first glance, but it is not as bad as it looks.  You got this!

[mwrightea]

 

I agree do the 3115. 

[Catherine]

40 minutes ago, Gail in Virginia said:

daunting at first glance

It's more tedious than terrible.  Don't forget the second copy that gets mailed to... where is it -Ogden or Kansas?  Somewhere - it's in the instructions.  I just did one earlier this week for a new client where the previous person (who charged a ridiculously high price, IMHO) messed up depreciation on a rental unit.

[ILLMAS]

I really appreciate all the support, at first I was thinking I had to prepare one for each year

 

Also a big thank you to Eric, I just notice all the emoji's I might be making history here by being the first person to post new and improved emoji's