Depreciation

[S T]

There has been a few threads this last week on Depreciation, whether claimed or not claimed. So rather than "hi-jack" those threads, here is the new question

Rental Property - What if you discovered that the Land Basis was never deducted from the Bldg Basis - in otherwords, no separation of cost land to bldg , and the depreciation being reported has been calculated on the entire purchase cost say for 10 years.

How to correct? Obviously amended returns, but is there another way to make the adjustment in the year discovered without amending and incurring penalties, interest, etc?

It is a Residential Rental at 27.5 years. but the depreciable basis amount could be overstated by as much as $ 100K depending on the property tax records, thereby a significant amount over claimed in depreciation for those years.

Sandy

[taxea]

Yes an adjustment is allowed in the current year. Just be sure you attach a statement that includes an explanation and calculations. It will probably cause no depreciation being taken for a number of years and I believe there is a form required to notify of the correction/adjustment.

[S T]

Has anyone experienced this on an over-stated depreciation - it is sizeable if you add up the adjustment amounts over 10 years - T/P is not necessarily looking at selling the property in the near future, so not an immediate option in correcting on "sale"

???

Thanks

Sandy

[Kram BergGold]

How's This?

How about start doing it correctly and leave the Form 3115 adjustment for the year of sale. So lets say building and land cost $300,000 and land was $100,000 and $100,000 of depreciaiton was claimed you would show a 200,000 depreciable basis with $100,000 of depreciation claimed and I would think your software like mine might do something like give you $5,000 of depreciation every year rather than $7,000. As I said in the prior post Form 3115 can be filed at any time.

[S T]

Thanks Kram for your Wisdom and experience. Was a thought, going to advise Client of "error" and make corrections, just did not want to go down a wrong path, and there will be some record keeping of the property for future years, when and if property is sold

Sandy