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Dear All,
Is there any way to correct depreciation expense for a rental real estate other than to file an amended return?
Client (1st spouse) died, f.706 was filed, but accountant failed to reflect a 754 step-up. Hence, depreciation was based on the wrong amount - much lower than it would be. It is too late now to claim refunds for first two years of missed depreciation. But does it mean, it's lost forever, especially under the concept of "allowed or allowable" depreciation?
There is a thought to file for a "change in accounting method" (form 3115) and claim that a wrong method of accounting was used, => try to recover lost depreciation this way. Have anyone done that in the past?
Any other ideas?
Please share your experience and thoughts.
Thank you very much.
-Valentina.
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Power Member
Group: Forum Members
Last Login: 2 days ago @ 4:53:46 PM
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| I'm a little confused by your question. Is the real estate held in a partnership? The partnership makes a 754 election not the people who inherit the property. Not all partnerships will make such an election because it's a lot of record keeping and doesn't benefit every partner. If the real estate was individually owned, the returns could be amended to claim the additional depreciation while you're within the statute of limitations.
Mary Kay Foss
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Thank you for your reply.
Real property is not inside a partnership - surviving spouse got it. Amending returns for all open years is not a problem - it's what can be done for the closed years? Is there a way to recover tax benefit from the depreciation not claimed in those closed years?
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Power Member
Group: Forum Members
Last Login: 2 days ago @ 4:53:46 PM
Posts: 110,
Visits: 447
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| This is just a top of the head reply - you couldn't amend the returns and claim refunds when the statute has closed. If the depreciation would create or increase a passive loss carryover, you may be able to attach a statement to the amended return for the first open year that refigures the passive loss carryover. There is an allowed or allowable rule for depreciation and I've seen IRS impose it on an audit of the sale of the property. The Change of Accounting Method allows you to deal with prior year problems so that the statute wouldn't be an impediment except that you're not really changing the method; you're changing the basis. There have been developments in connection with Accounting Method changes in the last 10 years or so relating to changing fom an incorrect method of depreciation to a correct one but I don't think that will give you relief. You could try researching it though.
Mary Kay Foss
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Thank you, Mary Kay.
Unfortunately, there was so much income that even substantial increase in depreciation expense would not lead to a loss c/o. So, it would be nice to get hard cash back...
As to the "allowed or allowable" concept for the depreciation, yesterday I was told that there was a RevProc in the past couple of years that provided for some relief on this issue: supposedly, in the case of a 754 step-up, there is no "penalty" for not taking depreciation immediately, and one would just start the count whenever they start. I will try to find this RevProc just to be sure. The only downside to this approach is that the surviving spouse might not live that long to get full benefit from it. But at least it's something.
Thanks again.
-Valentina.
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