macrs & acrs dilemma

[POCAHONTAS]

client sold his residential rental in 2007 and has been depreciating his four-plex under Macrs 27.5 SL, his previous tax preparer, has put the acquired date as 8/1/1986, but my understanding is that it should have been depreciated under Acrs method of depreciation because it was placed in service before 1987? am I correct? if so then do I need to go back and figure the depreciation under the Acrs method and put it on form 4797 and it would be 19 year property correct???. Also when I looked up the property info on the tax collector website it showed the property was recorded under my client's name in 1982. My client does not have his tax returns from 1982 only from 1994. His deadline from california state is to file is august 29th, otherwise he'll have to pay extra 25% penalty, and I don't have time to get his transcripts from the IRS.

This is my first time preparing sale of residential rental, any help will be highly appreciated thanks

[Uncle Sam]

Macrs/Acrs

Which year did he start renting it out for rental purposes.
Even though he acquired it in 1982 doesn't mean he rented it out that year.
Somewhere before the 19 year period, it was 18 year period depreciation - not that it matters at this point.
You're on the right track -
What I would do is pick up what the proper depreciation SHOULD HAVE been, and recapture the excess.

[POCAHONTAS]

thanks uncle sam, (my question may sound dumb to you) but what do you mean by or rather how do I?

" pick up what the proper depreciation SHOULD HAVE been, and recapture the excess".

does it mean that:-

assuming he began renting in 1982 ( which I do believe he did but I'll call and make sure) do I depreciate the complex using the ACRS method for 19 years and which would leave me with excess depreciation of 6 years the excess depreciation of 6 years would go on form 4797 part III. If that is the case then perhaps I am not understanding the recapture of depreciation because I thought that all the depreciation allowed or allowable has to be added back and which would lower the basis of the property.

thanks

[Uncle Sam]

Macrs/Acrs

What I meant was - calculate what the depreciation would be if it was calculated correctly since the inception of being rented out. Then, any depreciation taken in excess of that amount would be recaptured under the recapture rules - since you wouldn't have been entitled to get it if depreciation was calculated correctly.

[Bees Knees]

MACRS for residential rental property is 27.5 years straight line. ACRS for real property placed in service during 1986 is 19 year property. If somebody at one time way in the past switched depreciation methods from 19 years to 27.5 years, that means the rate of depreciation decreased. It did not increase. Thus, when the property was sold in 2007, the amount of depreciation claimed under MACRS would be less than the allowable amount that could have been claimed under ACRS. There would be no excess depreciation claimed, but rather, a deficiency of depreciation that should have been claimed.

Unfortunately, the rule is depreciation allowed, not depreciation claimed. Thus, you have to treat the sale as if total depreciation was calculated under ACRS rather than under MACRS.

That is assuming the property was placed in service during 1986. How do you know what year it was placed in service if tax records only go back to 1994?