Have not claimed depreciation for 6 years- how do I start?

Question

How can I go from not claiming allowable depreciation on a rental
property to claiming allowable depreciation without creating an
unauthorized change to my accounting method.

I have owned the property since 2003.

I do not care about the past several years lost depreciation and have no desire to amend those returns (it is not enough to make it worth the time and effort).

I would also like to avoid having to file a 3115 at this time. Is it acceptable to simply start claiming the allowable depreciation that I have failed to claim the last several years?

Account Closed · Answer

Actually this would not be a change in accounting method.  It would be failing to account for depreciation.  You'll definitely want to claim the depreciation.  Eventually when you go to sell the property it will be subject to depreciation recapture regardless of whether depreciation was actually taken.

Steve Babiak · Answer

John  Evan Miller - I say BS regarding that statement - the IRS will be coming after those who try to depreciate the house where they live (unless there is a business activity, and then the depreciation is limited to the percentage of area used for business).  See this excerpt from the link you provided:

Account Closed · Answer

Tammy Gal

Yes.  Depreciation starts at the time you convert your residence into rental property.  You must use the lower of actual cost (basis) or fair market value at that time.

Steven Hamilton II · Answer

Jon Holdman,

For residential rental property you are looking at 27.5 years; however, a home office is commercial. Offices are commercial space. Therefore, the office itself will be depreciated over 39 years.  Specifically MACRS straightline 39 years.

I highly recommend that you do not use a basic system for tax preparation as you will want to especially start out strong in knowing what you can and cannot do.

-Steven the Tax Guy

Jon Holdman · Answer

Is this correct, Steven Hamilton II?  I though you were limited specifically to 27.5 year straight line depreciation for residential properties.  With, of course short periods for certain items.  Maybe that is what's specified in the linked publication.

If you own rentals, using a program like TurboTax is, IMHO, being penny wise and pound foolish.  I'm confident it does the calculations correctly.  I have zero confidence in my ability to correctly input the data.

Steven Hamilton II · Answer

John  Evan Miller,

A home office is not considered part of your home.  That is the point Steve Babiak was bringing up.  A qualified home office is considered commercial property and is depreciated over 39 years as such.

Your personal living areas are not eligible for depreciation.  They cannot and should not be depreciated.

BTW, @John Evan Miller  Which are of Miami are you in?  I spent one of my college years living near Biscayne and NE 125

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.

John Evan Miller · Answer

Yes Steve Babiak, that is why I linked to the publication.  If you are managing rental properties from your house, you must have a home office. If you have a home office, then the expenses subject to that area are deductible, including depreciation (as long as you meet the IRS requirements for a home office).

Regardless, we are talking about a rental property that does meet the requirements and so would be eligible for depreciation.

John Evan Miller · Answer

Whether you live in a property or rent out the property, they both have depreciation. You can decide if you want to claim it or not. I would recommend setting up the depreciation schedule based on when you bought the home (2003).

Then, determine the type of depreciation you want to take. The Modified Accelerated Cost Recovery System (MACRS) is the proper depreciation method for most property. Here is the IRS link: http://www.irs.gov/publications/p946/index.html

Then determine the rate of depreciation for this year and claim it on your taxes. Easy as that.

P.S. If you use a program like Turbo Tax, they will calculate the correct amount of depreciation for this year automatically for you.

Mike H. · Answer

Just curious. But was there a specific reason you never claimed depreciation on the property for the last 6 years?  Just an oversight? Or was there something else to that?

i.e. Maybe you lived in it or a relative lived it? Or maybe you didn't need the deduction and didn't want to pay the capital gains when you sold?

Just wondering why it wasn't claimed as sometimes that makes a difference to the answer.

Tammy Gal · Answer

Is it possible to take depreciation on a residence purchased 30 years ago but converted to rental property over 28 years later?

Have not claimed depreciation for 6 years- how do I start?

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