Postpone Depreciation?

[Possi]

Have you ever heard of anyone deliberately postponing depreciation on rental property until they sell it?

My new client has rented property since 2003 and never took depreciation. Let me quote: "No depreciation taken on the homes in NC (never a rental), CA, or Norfolk, VA. I was not planning on taking depreciation on the rental properties in CA and VA until I sell. Correct me if I'm wrong, but my understanding is that is an option vice yearly depreciation."

All I can say is, "HUH?"

[Lion]

Charge him a huge amount for the 3115 !!

[Possi]

Really!

I don't think I can charge him enough! What a PITA this is!
$$$$$$$$$$$$$$$$$$$

[RitaB]

The source

Your guy got that from the latest tax help book put out by my hairdresser.

I have actually seen a couple of people who read her book. Then you tell them depreciation starts when you place that puppy in service, use it or lose it. And they go back to get their roots done, and you go round and round. Sigh.

I concur with RitaL. And yes, huge PITA you got there, Donna.

[Possi]

Your guy got that from the latest tax help book put out by my hairdresser.

I have actually seen a couple of people who read her book. Then you tell them depreciation starts when you place that puppy in service, use it or lose it. And they go back to get their roots done, and you go round and round. Sigh.

I concur with RitaL. And yes, huge PITA you got there, Donna.

Always can depend on you to brighten my dreary office! LOL!!

[Lion]

Figure out how much more their returns would've cost them with depreciation schedules for all those years. Double it. Charge that for Form 3115. Or triple it.

[RitaB]

Crack that whip, girl

Figure out how much more their returns would've cost them with depreciation schedules for all those years. Double it. Charge that for Form 3115. Or triple it.

Whop-ppppssssshh!

[Possi]

2 properties

There are 2 properties that he didn't take depreciation on. One was from 2003 forward but the other was just for 2010.

I don't see any reason why I don't combine the two totals on the 3115, but of course break them out on the Sch E between the two properties. Any objections?

[Gary2]

There are 2 properties that he didn't take depreciation on. One was from 2003 forward but the other was just for 2010.

I don't see any reason why I don't combine the two totals on the 3115, but of course break them out on the Sch E between the two properties. Any objections?

Has 2011 been filed already? If not, then merely not claiming depreciation on the 2010 return does not count as establishing an (impermissible) accounting method, and thus it can be corrected by a simple 1040X amendment.

If 2011 has been filed without claiming the depreciation for the 2010 property, then it's the 3115 for both. If 2011 has been filed, and if it claimed the correct depreciation for the 2010 property as if it had been done properly in 2010, then I'm not sure, but I'd give the 1040X a try anyway. Of course, that could just complicate the 3115 - but the 3115 has waited this long, it can afford to wait a few extra months.

[taxxcpa]

I have a client who went into the "house flipping" business. After flipping one or two houses they got one they couldn't flip, so they rented it supposedly temporarily until they could eventually flip it.

During the flipping of the first houses, they were handled as inventory. The one they are still holding is considered inventory and no depreciation has been taken.

At what point should it be considered as non-inventory and depreciated?

[Gary2]

Have you ever heard of anyone deliberately postponing depreciation on rental property until they sell it?

My new client has rented property since 2003 and never took depreciation. Let me quote: "No depreciation taken on the homes in NC (never a rental), CA, or Norfolk, VA. I was not planning on taking depreciation on the rental properties in CA and VA until I sell. Correct me if I'm wrong, but my understanding is that is an option vice yearly depreciation."

All I can say is, "HUH?"

With those locations, it sounds like something they teach at boot camp.

I've seen one case where the taxpayer insisted he didn't want to take depreciation because he'd only have to pay it back when he sells (sort of true). But since the rental has been running as a loss, with other income too high for the $25K allowance, it's going to have no effect anyway. But danged if he can't get his head around the idea that the bookkeeping and reporting has to be done right regardless of the null effect on the bottom line.

[Possi]

2011 filing now

Has 2011 been filed already? If not, then merely not claiming depreciation on the 2010 return does not count as establishing an (impermissible) accounting method, and thus it can be corrected by a simple 1040X amendment.

If 2011 has been filed without claiming the depreciation for the 2010 property, then it's the 3115 for both. If 2011 has been filed, and if it claimed the correct depreciation for the 2010 property as if it had been done properly in 2010, then I'm not sure, but I'd give the 1040X a try anyway. Of course, that could just complicate the 3115 - but the 3115 has waited this long, it can afford to wait a few extra months.

I am filing the 2011 now, and I really don't want to wait any longer than I have to. It sure would be a time saver for me if I could take care of it all on one return. I didn't do the 2010 tax return, and don't relish amending his DIY return. So, putting it all on the 3115 would benefit me if it is allowed.

If 1040X for 2010 is my only option for that particular property, I'll do it.

[Possi]

Boot

With those locations, it sounds like something they teach at boot camp.

I've seen one case where the taxpayer insisted he didn't want to take depreciation because he'd only have to pay it back when he sells (sort of true). But since the rental has been running as a loss, with other income too high for the $25K allowance, it's going to have no effect anyway. But danged if he can't get his head around the idea that the bookkeeping and reporting has to be done right regardless of the null effect on the bottom line.

I'd like to give many of my clients my own form of BOOT CAMP!

[Possi]

Rented?

I have a client who went into the "house flipping" business. After flipping one or two houses they got one they couldn't flip, so they rented it supposedly temporarily until they could eventually flip it.

During the flipping of the first houses, they were handled as inventory. The one they are still holding is considered inventory and no depreciation has been taken.

At what point should it be considered as non-inventory and depreciated?

Are they renting the one they are holding? Or is it just sitting?

[Gary2]

If 1040X for 2010 is my only option for that particular property, I'll do it.

I don't know if it's your only option. But it will probably simplify the 3115 processing immensely.

I've never actually done one of these 3115s; it's on my to-do list. Personally, I'd consider getting the 2010 amendment off right away, being sure to include in the explanation a statement that the 3115 isn't required because it's only one year. Then do the 2011 with the 2003 3115. But I'm not prepared to guarantee that that's either right or most efficient.