Incorrect Loss Carry Forward Being Used

[David]

TP was divorced in 2011. He owned 2 rental properties that had loss carry forwards at that time. He filed single in 2011 and only half of his loss carry forwards were brought over to his 2011 tax return. TP says he owned those properties prior to his marriage and her name was not on the deeds. The ex-spouse was not aware of the loss carry forwards so she did not deduct them.

He began living in one of the rentals in 2011 and the 1/2 loss carryforward has been suspended since that time. He sold this property in 2015. This is why I want to get the loss carry forwards corrected in 2014.

He has continued renting the other property since the divorce and in 2011 he used the 1/2 loss carry forward from 2010. 

Can I change the loss carry forward amount for the 2 properties on the 2014 form 8582 to give the TP credit for the 1/2 loss carry forward amount that should have been carried forward on his 2011 tax return without raising any flags? If it will raise a flag, will a statement explaining the situation suffice?

Or do I have to actually amend the 2011 - 2013 tax returns to show the correct loss carry forwards each year?

I know the TP will not receive the refund due for 2011 so that is a moot point probably. In 2011 he would have been able to deduct the full amount of the other 1/2 loss carry forward on the property that is still being rented.

So maybe the best thing would be to change the beginning suspended loss amount for the property he has been living in and include a statement explaining the error?

Can anyone who has dealt with this situation give me some guidance?

Thanks.

[jklcpa]

I would amend the returns. Although there will be no refund received from 2011, any time there is a change in income, deduction or credit, amendments should be filed. While this is a carryover that you say will not affect the outcome of other years, the c/o had the potential to reduce income.  It will also give the IRS the proper paper trail and flow of the loss carryovers from year to year that you can point back to in the event it is ever questioned.  Also, be sure to include the 8582s on an AMT basis too because the IRS has no way of knowing how much the 8582 calc'd on the AMT may differ, and I've had the personal experience of amended returns being held up in processing and questioned because the AMT calcs were not included.