New client has rental that began in 2006. Previous tax preparer did not deduct the land value from basis (confirmed with taxpayer). A difference of over $2,000 a year in depreciation deduction. Client does not want to amend previous years, but just wants to correct going forward. Is there any way for me to do that? Can't use 3115, correct?
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I would say
this is a mathematical error and not a change in accounting. Correction is done by amending the returns. -
amend starting with the year in error or make an adjustment on the 09 return to correct the depreciation. You may have to continue to adjust the depreciation out for each future year until the correct amount catches up.
If you amend your client will owe for each year.Believe nothing you have not personally researched and verified.Comment
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Incorrect Depreciation Basis
If client does not want to amend previous years, is there any allowable way to change basis to correct amount for 2009 and take correct depreciation from 2009 forward? As a tax preparer, I can recommend taxpayer to amend, but it is their decision. They were not aware that depreciation was set up incorrectly until I started asking about rental and depreciation of the rental.Comment
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Incorrect Depreciation
Form 3115 is what you want to use to correct depreciation.Comment
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Sure, you can change the basis for depreciation for the current year and going forward since it was incorrect to begin with, and I would say it is not only allowable, but mandatory since you are now aware of it. Sure, he should amend the previous years' returns, but you can't force him to do so, and I wouldn't do them without his approval. Just document in your files. Had the same situation two years ago. They never want to amend when it's going to cost them $$.Originally posted by peggysioux View PostComment
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You could explain that the best way to correct this error would be to amend the returns so the IRS has a clear understanding of the issue. Then tell them the other option would be to make the adjustment on the current year.
Before you talk with them I would do the math on how the adjustment is going to work out for them. As I said before it may cause the depreciation to be backed out for several years before it catches up to what should have been take over what actually was taken.
Another thing to check is: what is the tax liability of the amended returns when compared to the current year...it may be more beneficial for them to make a one time adjustment.
This would be cheaper...tax prep wise.
As for the error by the other preparer I would suggest they go to that person and ask for return of prep fee and payment of penalties and interest caused by this error. If refused there is always small claims court.
Don't let them make the other preparer's error your issue, just stick to what you can do for them now.Believe nothing you have not personally researched and verified.Comment
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stop and think for a minute..
Why would you ever suggest this. You are making a mountain out of a very tiny molehill. There is no penalty or interest involved. Depreciation is an estimate of approximate use of the asset. Nothing more, nothing less. We are not talking about enough money to make much difference to the IRS. The error will take care of itself if the property is disposed before the end of the 27 year life and if kept longer it will be fully depreciated anyways.Originally posted by taxea View Post
Just adjust the basis now and move on. Apparently the life was set up correctly in the beginning and just the basis was wrong. It is very common to adjust basis for many reasons.
We all make mistakes, it is not correct to tell a client to sue another preparer for such a simple thing.AJ, EAComment
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