New client who has owned a residential rental property since
1981 and sold it in 2006. He did his own tax returns and never claimed any depreciation expense. Property was jointly owned with a sister, who died in 1995. His original half of the property would have been fully depreciated under ACRS years ago, but the half inherited in 1995 with a stepped up basis would have been only part way through a 27.5 year depreciation schedule by the sale date. Obviously, he is not at all happy about the recapture of 25 years of allowable but unclaimed depreciation at the 25% tax rate. I presume that amended tax returns for 2003, 2004 and 2005 can help with a very small portion of the unclaimed depreciation, but that the unclaimed depreciation from 1981 through 2002 is lost. I have never attempted Form 3115 and it looks daunting, but would that allow the claiming of 25 years of previously unclaimed depreciation on his 2006 tax return?
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