Can you change your depreciation value?

Question

Someone asked me a question on my site about changing depreciation for past years.  I did some research but could not find a solid answer.

Let's say you buy a property for 200k and use 100k for bldg and 100k for land.  5 years later you realize that you should/could have taken 150k for bldg.  What are your options?

To me, it looks like you could amend 3 years worth of returns(and lose out on 2 years of under depreciation but still have to pay it back at 25% when you sell) or file a 3115 with the IRS and take it all at once and use the new depreciation value of 150k going forward?

I know you have to take depreciation but what if you took the wrong amount(not as much as you could have) and never fixed it.  I always see that you have to pay depreciation recapture tax whether you claim it or not but how would the IRS know?

Harry Campbell · Answer

80%

Steven Hamilton II · Answer

What was the FMV of said structure in relation to the cost of the land?

Harry Campbell · Answer

@Steven Hamilton II National Building Cost Manual - which is used by this site:

http://www.building-cost.net/

Steven Hamilton II · Answer

How exactly did you determine building cost? That is what would be called into question.

Harry Campbell · Answer

Thanks @Steven Hamilton II , 50/50 was based off prop tax records.  But what if you realized 5 years later that you could have used another method(like calculating the building cost on your own) to get you a much higher depreciation value.

Steven Hamilton II · Answer

Yes, the Form 3115 has to be filled out.  How was the 50/50 allocation based?  As long as the method of allocation was reasonable you will not be in a position where you should have taken more.

Andrew S. · Answer

@Steven Hamilton II

might have some answers.  He is a tax oracle....