1099A & Form 3115

[taxpronewbie]

I have a tax situation in which i need advice/guidance...last year (tax year 2008) i received a return from a client to complete...in which he owned business rental property...in completing the return i found out "no depreciation from the rental was deducted from the previous 4 years the rental was placed in service completed by a "fly by night" tax preparer...bus rental placed in service date was 12/2004....rental purchase date was 6/30/2004....purch price 165,000.....so i detemined the depreciation for 2008 and deducted it on sch e.......this year (tax year 2009) the client informs me he has let the property go into foreclosure...due to the fact he has had no rental income/tenants for tax year 2008 & tax year 2009......the client has received the 1099a...which shows the FMV and the balance on the mortgage......???is...on the Sch d....which is the schedule i am using to determine
the gain/loss on the rental....is the fmv considered the selling price of the property...and is the date of abandonment considered the selling date on the schedule d.....as far as i know the bus rental property has not been sold......
Would i use the form 3115 to recapture the depreciation not deducted from the tax years 2004-2007.....if not how would i recapture the depreciation????...is this a complicated form to complete.....or would i be better asking a cpa or ea for assistance...i had one person suggest i should amend tax year 2007 then 3115 tax years 2004-2006...do to the fact the rental is placed out of service i dont think this is the correct way to go...... what about the 4797...is this form needed only if rental was used for partial personal and partial business???..........????assistance is needed....thanks fellow preparers......

[Nashville]

Some Issues

I can't give you a comprehensive answer to your multi-faceted situation, but I'll chime in about "depreciable" amounts.

2004 and 2005 are out of the statute of limitations. Forget about altering those returns. The fact that depreciation was ignored does not give the property a fresh start with full basis in later years because even though it was not taken, the property was still "depreciable."

Having said that, you may wish to review the conventions and elections for 2004 and select alternate lives or minimal conventions. The "depreciable" doctrine means we have to treat the depreciation as taken even though it wasn't. It does NOT mean we have to take the most aggressive available depreciation. We can, for example, select the alternate MACRS with only SL and select a longer recovery period. If you choose the least aggressive depreciation for 2004, then the basis in the property will be higher when disposed. Just be advised also that whatever method you select in the year of acquisition must be adhered to for 2005 and later years.

Seems like "shifty-eyed Sam" - my monicker for the proverbial guy across town who fills out taxes for nothing - is in every locale.

[WhiteOleander]

Actually, you can attach the form 3115 to the return you are currently filing to adjust depreciation on an item that is disposed of. Read the instructions for form 3115, "Automatic Accounting Method Changes" page 9 right hand side at the very bottom, item # 9. It gives you info on how to do it.