Elect out of bonus depreciation on amended return

[DoNTaxesNow]

new client with commercial rental properties had assets (new building, paving improvement, tractor) placed into service in 2013. These assets were never added to client's depreciation schedule and, obviously no depreciation was ever taken.
I plan to amend the 2013 and 2014 tax returns to claim the depreciation allowed, but due to lower income levels in 2013, the 50% bonus depreciation on the paving and tractor are not needed - the higher deductions in future years will be more beneficial. No other assets were added, and only prior year assets were depreciated in 2013.
My question relates to being able to elect OUT of the bonus depreciation on the amended 2013 return... I see the rule that a missed election out can be made on an amended return if file within 6 months of original due date. Am I now barred from electing out on an amended 2013 return?
From what I could find, I believe amended returns is the appropriate course of action rather than a form 3115 Change in Accounting Method.
Thanks for any help.

[TaxGuyBill]

Nope, you can not elect out of the Special Depreciation Allowance anymore.

The tax returns were filed for two years using an "impermissible" method of depreciation (not depreciating it at all). That means that Form 3115 is required, not amending.

https://www.irs.gov/publications/p946/ch01.html#en_US_2013_publink1000107388

[DoNTaxesNow]

Thanks Bill. I had read through the pub that you linked in your reply but I hadn't really thought that not taking the depreciation actually constituted an accounting method... unfortunately this was due to either miscommunication from the client or an error by previous preparer to miss these assets.
You are saying to file the form 3115 with the 2015 return to pick up the correct amount of depreciation, is that correct?
To complicate this even further, the original owner (thru an LLC) has gifted her interests to her son & daughter-in-law as of 1/1/15, and she will have much less income in 2015... so not sure how the adjustment will work out. Either way, I am thinking we need to extend the returns.

[DoNTaxesNow]

Also TaxGuyBill,
Is it your understanding that while filing the 3115 for the method change, that we still will not be able to elect out of the bonus depreciation?
Thank you!

[TaxGuyBill]

Yes, file a 3115 with the current 2015 return to 'catch up' on the missed depreciation.

Correct, you still can't elect out of the Special Depreciation Allowance. Sorry.

If she gifted her "interests", is this a Partnership? If so, the 3115 would be part of the 1065 and the 'extra' depreciation due to 3115 would flow to the new owners.

[DoNTaxesNow]

Yes it is a partnership (LLC) - at least now it is... it was treated as a SMLLC in prior years with all reporting done on Mom's tax returns.
I was going to check into the possibility of filing the 3115 through the partnership as they can use the deductions now... just didn't know if it would be appropriate since prior years are Sch E on Mom's return and now we will have a 1065 for two-owner LLC.

[DoNTaxesNow]

TaxGuyBill - Do you see any problems filing the 3115 as the partnership (LLC) when the prior years errors are related to Sch E transactions on Mom's returns (and of course all filed under her SS# rather than the LLC's tax ID#)?
Thank you for all your answers - they are very appreciated.

[TaxGuyBill]

I am really not sure, but here are my initial thoughts:

For the most part, the IRS does not recognize an LLC, so it was a just a Schedule E activity. The Client "disposed" of her property by means of a gift. That means that 3115 would need to be filed with the Client's original tax return in the year it was disposed, or the missed depreciation is it lost forever. The new owners would start the depreciation anew (usually 39 years) using the gifted Adjusted Basis (which is the original Cost Basis minus the depreciation that COULD have been taken).

Again, I am not 100% sure about that, but that is my take on things.

[DoNTaxesNow]

I was thinking like you about the new owners starting over their depreciation with Mom's adjusted basis in the gifted assets - but I now believe since the assets are actually owned by the LLC, and she gifted her interests in the LLC, that the LLC will just continue to depreciate the assets as if nothing changed... (except adding in those missed assets from 2013).
I have thought about the idea of using the unclaimed accumulated depreciation amount as if they elected out of bonus depreciation (my research led me to a "deemed" election out of bonus if no bonus was ever taken) but I don't know if this is appropriate here either...
I suppose if we were to forego the unclaimed depreciation, we have to calculate the allowable amount using the default depreciation methods rather than the slowest possible methods available (since alternative methods were not elected in the first year)... would be nice to at least keep the bonus amount out of the total allowable.

[TaxGuyBill]

But I don't think the IRS recognizes the LLC. They just see it owned a by single person, and now by a Partnership. Therefore the depreciation starts over.

When EXACTLY did the transfer take place? If the Mom owned it for one day in 2015, I would use 3115 on her tax return to 'catch up'. If it was given away on December 31st, 2014, in my opinion that depreciation is lost.

[DoNTaxesNow]

the effective date of the transfer is 1/1/2015... but I am looking into this more also, as the clients thought the gift tax return had been taken care of by the prior preparer, but we found paperwork stating it is a 2015 gift. I will be speaking with the attorney about it...
Filing the 3115 for Mom should work well. She may not have enough income to absorb the deduction but will at least get most of the benefit. I will be filing an extension for her anyway, since we will also have a gift tax return to do.

[Snaggletooth]

Igginernt Question

I have to question: If no depreciation AT ALL was taken in 2013, then how can anyone elect out of ANY method??

You two guys seem to know what you're talking about, so what am I missing?

[DoNTaxesNow]

my original question was if I could amend the 2013 return and get the depreciation deduction, but elect out of taking the automatic 50% bonus depreciation because the taxpayer didn't really need the whole deduction... it appears that it is way to late to elect out of bonus depreciation for the prior years, and a Change in Accounting Method Form 3115 will be required to claim the total missed depreciation deduction.

Thank you to TaxGuyBill as his answers have been very helpful. He does seem to know what he is talking about... not so sure about me...

[Snaggletooth]

Amend What?

DoN...How could you have elected Bonus Depreciation in 2013 if you didn't depreciate anything at all? Existence on a depreciation schedule doesn't count if it was never filed.

This one is really going over my head...

For what it's worth, I'm not sure a change in method 3115 is required if there is a simple mistake. Also I don't believe it is required for a different election, when such elections are the taxpayer's choice on a year-to-year basis. Consider, however, I am more resistant than most of our colleagues when it comes to executing a 3115 - especially for a failure to follow accounting methods rather than a genuine change in the methods themselves.

Having said that, I've followed TaxGuyBill for quite a while, and regard him to be quite knowledgeable.

[TaxGuyBill]

DoN...How could you have elected Bonus Depreciation in 2013 if you didn't depreciate anything at all? Existence on a depreciation schedule doesn't count if it was never filed.

This one is really going over my head...

For what it's worth, I'm not sure a change in method 3115 is required if there is a simple mistake. Also I don't believe it is required for a different election, when such elections are the taxpayer's choice on a year-to-year basis. Consider, however, I am more resistant than most of our colleagues when it comes to executing a 3115 - especially for a failure to follow accounting methods rather than a genuine change in the methods themselves.

Having said that, I've followed TaxGuyBill for quite a while, and regard him to be quite knowledgeable.

The Bonus Depreciation is automatic, unless the taxpayer elected OUT of it (which is what DoN wanted to do) on an original return. Even if no depreciation was taken on the original return, it is now impossible to elect out of it because it would not be on an original return.

Although 3115 is the proper way to do, realistically, I doubt if the IRS would care if you just amended it to add the depreciation. They don't like 3115 any more than we do. However, I would not risk it, especially because the property is now disposed and this is a 'last chance' to do it.

I'm just knowledgeable about the things I comment on. I'm pretty clueless on a lot of other things. :-)