If You Owned Property Prior to 2014, You Are Required by Law to File Form 3115 This Year

3 Replies

Hey BP Investors,

I wrote a blog post about the new IRS final regulations enacted January 1, 2014 and I followed it up with another blog post on a special requirement that some landlords may not be aware of - being that they need to file IRS Form 3115 Application for Change in Accounting Method with their timely filed 2014 tax returns. The blog post can be found here. 

I am not intending to self-promote via this forum post, I simply want to make investors aware of something that is absolutely necessary this year. IRS Form 3115 is very complicated, and if you don't have an REI savvy CPA or accountant, you may find yourself in hot water come April 15.

IRS Form 3115 takes an estimated 82 hours to learn the law, prepare and file with the IRS. Learning the law takes about 20 hours, so the preparation really takes approximately 62 hours. We can deduce two things from the amount of prep time: 1) the form is extremely complicated and 2) assuming a bill rate of $100/hr, it will be costly. 

If your accountant has failed to inform you about the new IRS regs, their implications, and Form 3115, I strongly recommend you evaluate your relationship with that accountant and their professional competency. It may be time to find one that is more REI friendly and one whose client base is primarily RE investors.

DO: Get VERY organized, educate yourself, ask intelligent questions, and provide as much support to your accountant as possible. 

DO NOT: Fail to get organized, wait until the last minute, fail to broach this subject with your tax professional. 

If you have questions, please post on this forum and I and the other accountants on BP will do our best to answer. If you'd rather ask a question in confidence, feel free to connect with me and shoot me a pm. 

what a magnificent waste of time. And money. 

It is a sad state of affairs in a country that has a tax system so complicated that an entire industry is formed to wade thru it. 

IRS employees, accounting firms, tax preparers. These direct government employees and the indirect government employees are sucking the life out of business. And this is all non-productive work. Scabs on the backside of the businessman. 

We have become a country of politicians, lawyers, and accountants. Not good.

Why don't we wise up and vote out all politicians and set up the govt on a sales tax system. No IRS agents, CPA's would have to do productive work for businesses, it would take the irs away from the individual. Limit the size of the federal government. 

Stop,the madness.

And now I get off my soapbox. 

Arlan potter, CPA

I don't see anything on the IRS website that says we're required to change our accounting method. Why would I have to file this if I'm just going to keep using the same method of accounting?

@Arlan Potter  I wholeheartedly agree. However, in the mean time, It's better to help people and raise their awareness than let them find out on their own when it may be too late.

@David H.  If you were in business prior to 2014, you need to file Form 3115 to adjust your accounting method to include the new routine maintenance safe harbor, which I cover in this blog post. It is a requirement that you make a good faith effort to comply with the new IRS regulations. 

The routine maintenance safe harbor is not elective, meaning you don't get to decide whether or not you want to claim in. Instead, it is a new method of accounting you must adopt. 

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