Amending 06 & 07 form 8829 to increase 08 EIC?

[AZ-Tax]

Client did not deduct his home depreciation on form 8829 going back to 2006. TP Sch C already had "tentative looses" in 06 & 07 therefore the home office deductions carried over to 07 then any 06 & 07 unused carryover home deductions would carry over to 08, correct?

TP showing "tentative profit" on 08 Sch C and reducing the profit increases the TP's 08 EIC.

[WhiteOleander]

I think I am thinking right about this. Since you are dealing with depreciation, you have to file form 3115 change in accounting method to claim the back years of depreication. You would not amend the prior years. You would take the deductions this year. I haven't ever filed the 3115. But, I think that it is an automatic election when you file the form.

[Snaggletooth]

Error Correction

Correcting an error does not require Form 3115. Changing an accounting method does.

I believe it is mandatory to take depreciation on an 8829. I don't believe the homeowner has the option of "not" taking it because it will be in the "depreciable" category. If this is the case, you simply need to file an amended return. If you are changing an accounting method you will need a 3115.

I would also make sure that the benefit justifies the expense of filing an amended return. I often run into situations where I can find a reason to charge $100 for an amended return but the tax savings might be only $50. I enjoy making money, but not that way.

[WhiteOleander]

Correcting an error on depreciation is considered a change in accounting methods.


This link has some info on how to do it.

http://www.thefreelibrary.com/Correcting+depreciation+errors-a018740556

[AZ-Tax]

Thanks but I am confused....

I believe Snag is correct to that if its an allowed depreciation, the IRS considered the TP to have taken it. Also, the accting method will remain cash. All that is being amended is adding the house depreciation on the form 8829. Does the accting method need change just for that?

[WhiteOleander]

I believe Snag is correct to that if its an allowed depreciation, the IRS considered the TP to have taken it. Also, the accting method will remain cash. All that is being amended is adding the house depreciation on the form 8829. Does the accting method need change just for that?

I agree with everything you have said. It is confusing. I haven't used the 3115. So, it may be OK to just amend the returns. Here is a link to the instructions for 3115.

http://www.irs.gov/pub/irs-pdf/i3115.pdf

[Jesse]

I think you can use the 3115 if the depreciation goes beyond open years for amending and then all depreciation that was missed is deducted in 1 year.

But you can amend for any open years and are not required to file the 3115. I did not read the instructions and I have never filed Form 3115 so I'm not 100% sure on this.

[Kram BergGold]

either or

In your case either amend all years or just prepare form 3115. I would do 3115 because it is less work but if you have neer done one it might be easie to amend the returns.

[AZ-Tax]

Follow up question regarding past property values...

In 2006, the first year to begin amending, the property values were obviously higher then they are currently. So do I use what ever value the TP felt his house was worth on 1/1/2006 or current value (date on amended return) since I am amending?

[Jesse]

Basis is what you need to use, not FMV. The taxpayer needs to figure out what the basis of the home was on the date it was placed in service. Or FMV if less than basis(I think).

This is why I stress to my clients to hang on to all home improvement receipts even if they are not a current deduction. You never know if there may come a day when you will have an office in the home, move and turn the home into rental property, or the laws may change to pre-1997(I think that was the year) and you'll need to know the basis in your home.