Depreciation never taken for rental property sold in 2014

[David]

TP prepared his own tax returns and never claimed depreciation for his rental property put in use in 2010. He sold the property in 2014.

If I am reading Rev Proc 2011-14 sec. 6.01(1)(a)(i) correctly, he can file Form 3115 and receive approval for automatic change to take the allowable depreciation in 2014 as a 481 adjustment - even though the IRS does not usually grant a change in the final year of the business.

Am I correct in my understanding?

How do I mark Part II question 3 of Form 3115 where it asks if the applicant ceased to engage in the business? He sold the property in 2014.

Also do I simply put the depreciation adjustment on sch E under other as a 481(a) adjustment?

It appears that the 3115 has to be signed by the TP but can be e-filed with the return and doesn't have to be mailed to any agency. Is this correct?

Thanks for your help.

[kcjenkins]

Yes, use the 3115 because the basis has to be adjusted down for all that 'allowable' depreciation.  

[David]

Thanks, KC.

Am I required to only attach as a pdf to the tax return or am I required to mail the form?

[Lion EA]

You also mail a signed 3115 to either Odgen or DC, I think.  Instructions should give you mailing info.

[David]

I thought I read that if it is an automatic change for depreciation that you only needed to e-file the 3115 with the return and not have to also mail it.

I guess it is safer to do both?

[jklcpa]

Yes, IRS wants a second copy mailed in.

[bbackues]

Hi David...how did this get resolved...did the IRS accept?    I have a similar situation requiring me to increase the PAL carryover because the client did not depreciate.

Thanks

[Pacun]

I saw KC answering this post and I got happy to see her again... EXCEPT that this is an old post.

What were they renting? Maybe it is not material and you can just calculate the depreciation allowable reduce the basis and be over with.

[michaelmars]

The nice thing is that the catch up depreciation is at regular rates and while it does increase your capital gain, you come out ahead on the spread.  I know this is an old post but the op could have gone back the 3 open years and amended those returns so that the 3115 wouldn't be in the last year of the business.

However, I have filed 3115's for final years and so far it hasn't been an issue.