Adjustment of depreciation on rental property

[Bonnie]

Can you do a 481 adjustment on rental property without filing a 3115? Taxpayer comes to me this year with rental property. Has been preparing their own return and has depreciation all wrong. She actually was audited on her 2012 and 2013 returns by IRS so I have that information and know that was corrected. House became rental property in May 2011 and taxpayer took no depreciation that year. This is the year I'm wondering if I can do an adjustment for what should have been taken? It's too late to amend the 2011 return. She also made a mistake on the 2014 before coming to me to prepare the 2015. So my question is should I try to adjust on the 2015 for the incorrect years of 2011 and 2014? Is this even possible? Or just forget it and let her live with the fact she messed it up herself. I don't think I need the 3115 because we are not changing method or basis. Was just wondering if there is a way to recoop the depreciation she missed in 2011.

[taxea]

Done properly, yes you can

[RitaB]

DIY hell prior to us

House became rental property in May 2011 and taxpayer took no depreciation that year. This is the year I'm wondering if I can do an adjustment for what should have been taken? It's too late to amend the 2011 return. She also made a mistake on the 2014 before coming to me to prepare the 2015. So my question is should I try to adjust on the 2015 for the incorrect years of 2011 and 2014? Is this even possible?

Each year stands on its own. If you mean correct the accumulated depreciation amount and move on, yes, you can do that. But you can't take more expense in 2015 than actual to make up for what was missed on 2011 and 2014. I would encourage taxpayer to amend 2011 and 2014 and not worry one iota if it's too late to get a refund for 2011. That is not your problem. The original return is incorrect, and it can be corrected. IRS will accept the amended return. Refund / no refund is not our concern. Correct tax return is our job.

It is also not your job (ok, I'm giving myself a pep talk now) to try to help the client avoid tax prep fees for 2011 and 2014. DIYers that screw up are not helped by being cut some slack. They should pay for tax prep just like the client who trusted us at the outset and paid for a good job.

[Lion]

You are changing an accounting method she established by using it for a couple of years, even though it was incorrect. That just helps it fall under the automatic changes. 3115 this year. Take adjustment this year. Charge her for it. You only have to fill out parts of 3115.

[TaxGuyBill]

You are changing an accounting method she established by using it for a couple of years, even though it was incorrect. That just helps it fall under the automatic changes. 3115 this year. Take adjustment this year. Charge her for it. You only have to fill out parts of 3115.

The way I read it, 2012 and 2013 are correct, so it does NOT fall under a change of accounting methods, so 3115 can not be used. The unclaimed depreciation for 2011 is lost, except MAYBE in the year of sale you could use code 107 (I would need to check on that though).

Was was wrong in 2014? That can probably be amended.

[Bonnie]

2014 was wrong because she did return herself again that year and in not understanding depreciation, she changed the basis of the house. Thought she needed to change that every year to account for inflation and enter what she thought the value would be each year. It was only off 200 in 2014 but still done wrong. They have the house up for sale now and off the rental market. Just love people like this.