3115 for understated basis for depreciation

[Possi]

In 2005, I began depreciating a rental:

He purchased it for 230,378. Land was 58,000. Depreciation should have been based on 172,378.

I depreciated 172,378 MINUS 58,000, leaving only 154,378 basis for depreciation. 

Is the 3115 (adjustment for depreciation) only allowed if NO depreciation was taken? Or can I use it to adjust the depreciation that was allowed? 

 

[Lion EA]

Form 3115

[Lee B]

Yes, you can use 3115 to correct the depreciation that was deducted, either way, whether it was over depreciated or under depreciated.

[Evan S. Golar]

Wouldn't this also require, in addition to the 3115, a 481(a) cumulative adjustment on an expense line?

[Possi]

1 minute ago, Lion EA said:

Form 3115

Thanks for this response, Rita. I have done this at least once before, so I was surprised when the new preparer said it could only be used if NO dep'n was taken. This client has had to move to a CA preparer, and I am going to send her some documentation to support this. She is telling me that I must amend and that the depreciation missed will be depreciation lost. 

Here is what I found, letting her know she can do this:

https://taxmap.irs.gov/taxmap/pubs/p946-008.htm

Specifically: 

Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following.

• An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167.
• A change in use of an asset in the hands of the same taxpayer.
• Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). If you elected not to claim any special depreciation allowance, a change from not claiming to claiming the special depreciation allowance is a revocation of the election and is not an accounting method change. Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. You must submit a request for a letter ruling to make a late election or revoke an election.
• Any change in the placed in service date of a depreciable asset.

[Lion EA]

I think depreciating the wrong amount for two years is an impermissible method and can use Form 3115, but I haven't had a client need that so haven't researched it.  You've done a good job with IRS info.  And, you're being a good person to explain your results to your client and her new tax preparer.  If the new preparer is filing the returns now, you can wash your hands of it; you've done all you can do.

[Possi]

34 minutes ago, Evan S. Golar said:

Wouldn't this also require, in addition to the 3115, a 481(a) cumulative adjustment on an expense line?

Yes. Page 4 of the 3115, line 26 is where the cumulative adjustment would go, and flow to the tax return accordingly.