Could someone review this for me?

[JG EA]

Please help me run through this return that I need to finish in two days. Thanks if you will.

TP has AGI approaching 200,000. Sold rental property and never took depreciation. I am preparing a 3115 for the depreciation to the tune of 31,000. I am putting that amount on the Sch E under depreciation with 2004's partial depreciation. OK so far? Then that same depreciation shows as allowed/allowable on 4797. The profit is therefore higher than the client figured and the Sch E is more of a deduction than the client figured.

I am coming up with AMT as a result of the extra depreciation which the client never figured on.

Am I on the right track here?

[Bees Knees]

If the rental property was placed in service before 1999, then yes, AMT depreciation would be over 40 years instead of 27.5 years. So you could have an AMT issue kick in.

But I think you would wipe the AMT out by making an adjustment on line 16 of the 6251, disposition of property (difference between AMT and regular tax gain or loss). The adjusted basis of the rental property should be different for AMT purposes due to the difference in depreciation allowed. The difference in the deduction for AMT on Schedule E and the difference in the gain for AMT on the 4797 ought to equal each other out so that there is no AMT.

I think.

[JG EA]

Thank you.

Thank you, thank you, thank you.

[JG EA]

A follow up question.

...the difference in the gain for AMT on the 4797 ought to equal each other out so that there is no AMT.

I think.

So, can I make an adjustment on the automatic entry on line 18, Form 6251. That line is now taking the difference in the total catch-up depreciation and this year's AMT depreciation and so still a disparity between line 16 and line 18.

I should be able to because the depreciation taken is truly taken all this year and so the difference between regular and AMT should be on the whole amount taken??? Right?

[Bees Knees]

I would say yes. Without going through the mechanics of the calculation, the theory should be correct.

Keep in mind your software isn't going to be able to handle it automatically. I'm sure the numbers your software is coming up with is assuming depreciation was correctly calculated in previous years. That's probably why they don't match.

[JG EA]

Thank you again.

Muchisimas gracias and Merci Monsieur.

[Mark Goldberg]

Correct line for 3115 adjustment

The adjustment is not made on the depreciation line, rather it goes on the other expenses line as "Form 3115 adjustment".

[JG EA]

Great

The adjustment is not made on the depreciation line, rather it goes on the other expenses line as "Form 3115 adjustment".

Well, that return went out today. What horrible thing do you think will happen to me?

[S T]

Form 3115

JG, I haven't used the form 3115, but I think I might of uncovered a couple of returns that I could use the form on. How difficult was it? I took a glance at it and just thought I will try later, when I am not so stressed and pressed for time. Not year of sale returns, just depreciation corrections.

In your case you used 3115 in the year of sale. Is it better to use 3115 then or when you discover the depreciation errors?

Sandy

[JG EA]

Sandy

Yes, because its not supposed to be used as a planning tool, but just for mistakes. I think the year we learn about it is the year to use it. In this case the client had always done her own return. The mistake needs to be at least two years ago. If it was the last year, you just amend.

There are eight pages, but most of them remain blank. I send all eight in, not sure if that is necessary. You also need a worksheet attached to show your calculations. I do that in pencil on a ledger page and send in a copy of it. You also mail in a separate 3115 to Washington DC. QF has all this, look in section 10 page 12 or 14 I think.

JG