Bonus Depreciation

[Kram BergGold]

My client and his brother had a 1041 prepared elsewhere. In 2003 they, as the landlord, began depreciating a leasehold improvement using S/L 39 years. Now they want to see about claiming 30% or 50% bonus depreciation.
Let's say the preparer did not check the box on Form 4562 to make the election not to claim. I assume since they are liable for the bonus under allowed or allowable that they can amend? also if they sent in the 1041 for 2005 then they would not be able to use Form 3115 until 2006 as another method to adjust this return, correct?
Now let's say they checked the box, electing not to claim bonus depreciation. I assume they can amend as we are still within the SOL, correct?

[jainen]

Definitely S.O.L.

>>we are still within the SOL<<

Definitely S.O.L. Bonus depreciation only applied to assets with a class life of 20 years or less.

[Kram BergGold]

Leasehold improvements

Jainen,
There is a category for leasehold improvements which were eligible for bonus depreciation. I found this in an IRS pub on depreciation. The question is, the election not to claim bonus depreciation, is it changeable?

[jainen]

If they were

If they were qualified leasehold improvements with a mistake about claiming bonus depreciation for 2003, you can't amend but must use the procedures for a change in accounting method. If they elected out, which I can not tell from your hypotheticals, this requires a private letter ruling.

I don't understand what you are asking about 2005 and 2006.

[Kram BergGold]

Clarifications

I just realized that the election not to claim bonus depreciation was not on 4562 but rather was done with a statement. My assumption is the preparer of the 1041 for the year the leasehold was placed into service did not atttach the statement. Assuming this, you say
we can't amend, we have to use 3115. So if my client mailed in the 2005 1041 then we have to fix this in 2006. If he has not sent in the 2005 1041 but placed it on extension then we can fix it on the 2005 return.

[jainen]

to revoke the election

Since they elected out of bonus depreciation, they will have to request a private letter ruling to revoke the election.

[Bees Knees]

to clarify...

TTB, page 9-17, "The special depreciation allowance is automatic for eligible property unless the taxpayer makes an election not to claim it."

So in other words, absent the election, the taxpayer was required to claim the bonus depreciation. If it wasn't claimed, basis in the property must still be reduced for the depreciation that should have been claimed. To go back and change the return to claim the proper depreciation, you have to follow the change in accounting method procedure mentioned in TTB on page 9-20. Personally, I would first just try to amend the return and see if IRS will let you provided it is still not a closed year. However, if they don't let you do it, you have to file Form 3115 to change the depreciation method to what it should have been.

If the election WAS timely made on the return, and you now want to claim the special depreciation allowance, TTB, page 9-17 says, "Once made, the election cannot be revoked without IRS consent."

[Unregistered Jon]

What did

change?? I believe 179 changed. You can amend to take more or less... That was changed a couple of years ago.. Prior to that you had to do it with a timely filed return....

[Kram BergGold]

Thanks Bees

Now I know how to proceed.