Like Kind Exchange

[GTS1101]

I have a client who had a rental that was a previous 1031 exchange in 2007. The prior tax professional did not claim the correct basis so he did not get the full depreciation deduction over the years. When he sold the property I was going to do form 3115 to claim a section 481 adjustment. Instead of selling he decided to do another exchange and he exchanged one rental for 3 new rentals. Do we have to wait for a final sale to claim that depreciation that was missed or can we claim it now on form 3115 because the property is gone and he has 3 new rentals.

Thank you!

[Lion]

You file Form 3115 when you discover you need to "fix" depreciation.

[ATSMAN]

Like Lion said. Also the adjustment is calculated without regard to the statute of limitations. A taxpayer is able to recalculate depreciation on assets acquired in a tax year that is closed under the statute of limitations. Also IRS generally offers audit protection for such change.

I have always recommended to my new clients to take advantage of this law, when I find issues with depreciation from years past. Mostly DIY rental returns!

[GTS1101]

Thank you to both of you. Sometimes I make things more complicated then they need to be. Appreciate your help!