Unclaimed Depreciation

Form 3115 is the only correct answer, and if you don't do it or get it done for this client, he's being "underserved". And Form 3115 isn't that hard; you just have to decide which part applies to you/your situation and *not* get distracted by all the rest of the form and instructions that do not apply to you. But, the first time you do it, that means you should read all or mostly all of it - to be sure it doesn't apply to you/your situation - and I would suggest that you should *not* be billing your client for reading the part that doesn't apply to you/your/his situation. And remember, the depreciation that you get to claim is an ordinary deduction, not a capital loss or section 1231 loss and it should not be subject to the passive loss limitations, because the property has been sold. Good Luck!!

Oh My! Did his late sister also get shorted by the omitted depreciation? I'm at a loss to suggest how to make it up to her...

3115 is "Application for Change in Accounting Method"

Will the IRS ever permit one to not take depreciation, and to not take retroactive 25 years? This appears to be a stretch. JOE

I've got the flip side of that situation / mess. New client-sold property in 2006-held for 20 yrs or so. Multi family house - owner living in 1 of 4 units. Taxes were prepared by the local travel agent on the corner (who didn't have a clue), who depreciated 1/2 the house. ___________________________________

-----> real address on hobokeni or hobokenx

What happens in the case (mine) where I bought and lived in a new house from 1981, made additions/improvements and and then moved and didn't begin renting it until 9/97 to the present. I have not depreciated it at all?

As the original poster, here's what I ultimately did:

After talking with several people who supposedly know, including the contributors to this site, I completed Form

3115. If you read it and the instructions completely, it'll make your eyes cross but, in fact, for this type of change only the first page and a few questions in Section E need be completed. In this case, I was requesting change #7, changing from an imperrmissable accounting method (i.e., NOT claiming depreciation) to a permissable method (i.e, claiming depreciation). I attached a narrative explaining the facts and circumstances and a table (Excel) detailing the calculation of depreciation for the 25 year period. The retroactive depreciation from 1981-2005 - nearly $24,000 - was reported as a "Sec 481(a) adjustment" on Schedule E and the proper depreciation for 2006 was reported on the proper Depreciation line for Schedule E. The claimed retroactiive depreciation should save about $6,000 in Federal taxes. Form 3115 is submitted as a separate, stand-alone document to the IRS and is ALSO attached to the 2006 tax return. Of course, this hasn't yet been filed with the IRS, but I'm hopeful and the client is delighted. I don't see why this same technique wouldn't work with anyone who has either overclaimed or underclaimed depreciation for several years running.