Improper depreciation going forward

[rtsietsema]

I have been reviewing a return for a possible new client and discovered two residential rental properties being depreciated as non-residential, 39 years. This CPA has done the work for 5 years and apparently simply copied the previous work done for upwards of 20 years. The return only shows the accumulated depreciation for 5 years. The original preparer didn’t like depreciation and apparently wanted to drag it out to keep income down. I have the potential client pulling records to get the correct total depreciation before fixing it.

Filing form 3115 is not in my wheelhouse and I’m uncomfortable continuing using the wrong deprecation. I know if they sold the properties before fixing this, it would probably work out in the end. However they likely will continue to hold the properties for some time yet so continuing the current depreciation is not a good option.

Should the current CPA file the proper forms and correct the issue? Should they do it without charge since they should have caught the error?

The client is hesitant to get this fixed, thinking it will all work out when the properties are sold. Do you see any problems if they choose not to correct the error?

[TaxGuyBill]

In my opinion, no the current tax preparer is not responsible to fix it now, and certainly NOT without charge. Although in my opinion they should have filed Form 3115, if that form was not filed, they HAD to keep using 39 years.

Just checking ... are you SURE it is 39 years, rather than 40 years? And is there any chance the owner of the building originally used for commercial/business purposes, then later converted to residential?