Discrepant prior depreciation

[appelman]

I fairly frequently get new clients with rental property for which the prior depreciation shown for the building is significantly more or less than what would have been calculated from the original basis. When I feed this prior depreciation into my software, it calculates an adjusted basis and then depreciates that adjusted basis over the remaining life of the property. Does this constitute a permissible accounting method?

[Kram BergGold]

Your post is unclear

Are you saying:
You have a detailed list of all depreciable items and when you figure out how much the prior depreciation is for each item, they are either too little or too much?
If so, here are the scenarios I can think of:
1. rental percentages were different in some years,

2. The proper depreciation was claimed but the software messed up carrying the proper amount forward as prior depreciation. This happened to me at least one year. I think it was when I was using APlus.

3. Accelerated was used in the first year and now it says S/L so it looks wrong but was correct.

If I did not correctly understand your issue please restate.

[appelman]

I don't have the ancient history.

I am talking about rental real estate, 27.5 yr SL. All I know is that in the depreciation report given to me, the prior depreciation is inconsistent with the basis and starting date.

Are you saying:
You have a detailed list of all depreciable items and when you figure out how much the prior depreciation is for each item, they are either too little or too much?
If so, here are the scenarios I can think of:
1. rental percentages were different in some years,

2. The proper depreciation was claimed but the software messed up carrying the proper amount forward as prior depreciation. This happened to me at least one year. I think it was when I was using APlus.

3. Accelerated was used in the first year and now it says S/L so it looks wrong but was correct.

If I did not correctly understand your issue please restate.

[buzzardbreath]

Probably Not Permissable

I don't think this is permissable. But I find that it is sometimes expedient, and will do it if too many prior years have passed. If ever caught by audit, I would let the Auditor put Humpty back together again.

If I understand your original post, imagine 27.5 year property purchased in 2007 for $100,000 depreciable value exclusive of land. The inherited accumulated depreciation going into 2012 is $35,000.

Under no possible scenario can the $35,000 be correct if the building was purchased in 2007. Again, your proposed solution to this mess is to take the remaining $65,000 over the remaining 22.5 years. This gives $2889 per year.

If we wanted to unravel the mess, I suppose we could wind back the calculation such that the maximum possible accumulated amount going into 2012 is $18029, and the proper amount for all succeeding years is $3636. This means your work for 2012 is correct. However, it also means some year(s) prepared by someone else have overstated depreciation and the IRS has most likely lost money. Not only that but some of the years are beyond the SOL.

For what it's worth, your suggested practice of compensating for past errors by taking current book value over the remaining life is called "prospective" correction. Don't google for it -- it may be just another buzzard-euphemism.

This is an ethical question, and I don't think I've answered it, except to state I don't think rescheduling all future depreciation is a permissable option. I certainly don't have a cite.