Question

Rental property over depreciation

Forum|Forum|1 year ago
April 2, 2025
1 reply
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This is the first time I will be using Turbo tax to file my tax returns. Till 2023 my accountant has been filing the taxes and when entering data into turbo tax for 2024 I discovered that for one rental property that was purchased and placed into service in 2020, they used the Total Purchase price to claim depreciation against and I have been told that the depreciation should only be claimed against the building portion of the property since land cannot be depreciated. For the other rental property that was placed in service in 2021, they used a flat 80% of the purchase price which also doesn’t accurately reflect only the building portion of the property. How do I fix this? Do I need to file Form 3115 to explain the corrections and then use the correct values 2024 onwards without amending the prior years’ returns?

Not A Product Question

M

MindyB

Yes, since the incorrect method was done for 2 (or more) years in a row, that is now considered an accounting method. The way to remedy this is to file a Form 3115, not filing amended returns. Form 3115 is due by the due date of the return that the accounting method change is being made for, including the extension.

If you'd like to prepare a Form 3115, you'll need to use a Desktop version of TurboTax, and file your return by mail.

See: Application for Change in Accounting Method

S

sking10Author

@MindyB Thank you.

1. Can I still use Turbo Tax online and just download and complete form 3115 offline and mail it in?

2. Do I also need to file form 8453 separately?

3. When I calculate the over depreciation amount for each of the previous years, do I need to add that to the rental income for each respective rental property for 2024 returns in turbo tax?

D

DianeW777

Can any expert please respond to my latest question?

I have one clarification on the over depreciation amount. If the amount of over depreciation in the prior years (2020 through 2023) is $14,000, to offset this what do I need to do?

1. Add $14,000 to the Rental income for 2024 or

2. Reduce my carryover losses from prior year by $14,000 or

3. Add $14,000 as other income on 1040 which increases my AGI and impact the refund amount?

I have never taken the benefit of any losses on form 1040 in any of the prior years and my rental property has always been in a net loss in each of the prior years.

I am thinking this is the guidance that applies to my situation but I am not able to fully understand what income is being referenced here. "A net positive IRC 481(a) adjustment increases income and is often referred to as a "government-favorable" adjustment. A net negative IRC 481(a) adjustment decreases income and may be referred to as a "taxpayer-favorable" adjustment."

Yes, add the excess depreciation allowed to the rental income in 2024. The carryover passive activity losses (PALs) will automatically be reflected because it will offset any income from the rental in 2024. This seems to explain the 'tax favorable' adjustment they refer to.

It was used to reduce your rental income, therefore it should increase the rental income. It is used in the same location of your return which is Schedule E, rental income.

@sking10

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