- quote -

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.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"LoTax" <lotax[at]hotmail.com> wrote:
- quote -

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.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] > > -----> real address on hobokeni or hobokenx <-----

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

"LoTax" <l...[at]hotmail.com> wrote:
- quote -

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?

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

LoTax wrote:

- quote -

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

<< ------------------------------------------------------- > << The above is intended for educational purposes only. > << It does NOT constitute legal OR professional advice. > << It cannot be used by any taxpayer, for the purpose of > << the purpose of avoiding penalties that may be imposed > << upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

"R. Pile" <michael.br...[at]wdn.com> wrote:

- quote -

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...

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"R. Pile" <michael.br...[at]wdn.com> wrote:

- quote -

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!!

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

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?

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >