Longstanding depreciation error

[think2much]

New client has a rental condo placed in service since 1998. His previous accountant used the whole purchase price as basis for depreciation. Amending his returns for the past 9 years for the excess depreciation sounds dreadful. Another fact to consider is that he has not been allowed any rental loss due to high income limitation for at least the last 3 years (I do not have returns earlier than those).

What is the best way to deal with this?

1.) Does the situation qualify for filing Form 3115 and doing a Sec 481 adjustment? Is correcting the depreciable basis (by subtracting the land value) considered a change in accounting method?

2.) Or can I simply, on current year's return, reduce the prior year unallowed loss by the excess depreciation taken in all prior years? Would that be a legitimate alternative to amendments or filing the intimidating Form 3115 ?

Please advise. Thanks.

[ecb34691]

How much land is there, if any. In this area of Florida, condo's don't have any land. Maybe "public/community" land. My parents condo doesn't have any land for them.

[think2much]

Longstanding depreciation error

How much land is there, if any. In this area of Florida, condo's don't have any land. Maybe "public/community" land. My parents condo doesn't have any land for them.

This condo is in California, and is a unit in a converted apartment building. The assessment info on the property tax bill shows approx 50/50 split between structure and land.

[think2much]

Longstanding depreciation error

Any suggestions?

[Black Bart]

Dear thinkin'-too-much (I wanna say "Dear thank you very much&quot

Any suggestions?

You're only responsible for this year's tax, so I'd take '07 and then do my duty and tell him he's supposed to fix the old years. Since there's no way I'd amend all that junk (I agree -- it does sound dreadful), if he wants to go ahead then I'd simply plead workload (don't have the time) and tell him it's going to cost an arm and a leg (true) and that might help make up his mind.

For the current year I vote for your number two solution (may not be strictly accordin' to Hoyle, but it sounds reasonable). If you've got the cost and method, then I guess you can just back into '07 depreciation and enter prior years depreciation total as it should be. I don't think correcting the basis is a change of accounting method, but even so, it's not worth worrying about -- the only way IRS will contact you about something like that is if you do the paper equivalent of screaming "Hey! Look at this" by waving that form 3115 under their noses. Otherwise, they'll never contact you about it -- they simply aren't interested in depreciation past the extent of punching in the figure on the front of C-E-F, whatever.