Client inherited property (house and land with timber) more than ten years ago. Basis was assigned based on tax assessment at that time. Has been used as rental property and depreciated using this basis.
Client believed that this use of tax assessed value resulted in understating the FMV of the property at the time of inheritance. Client has had an appraisal done which confirms this understatement of value at the time of inheritance.
In doing the 2009 tax return I need to restate the value of the asset (land and building) and pickup the additional depreciation that should have been deducted in the past). Also TP expects to sell some timber this year but that will be a 2010 issue.
Question is how to handle-
Do I need to file Form 3115 Application for Change in Accounting Method? I am not changing the method or depreciation period. I am changing the basis that was used. It does not seem to fit the requirements of 3115, but I think I need to disclose the change somewhere.
Maybe a Form 8275 Disclosure Statement?
Your thoughts???