Amend or Not

[Patrick Michael]

Client sold a rental home in 2023 and lo and behold, found about $40,000 in capital improvements from 2021 that she forgot to tell me about.  She does have receipts and is a scatter brain, so I believe it is legate.  Because of her income all the losses have been disallowed and the added depreciation will added to the unallowed losses.

Since her taxable income doesn't change do I have to amend the 2021 and 2022 years returns or can I just add the additional deprecation to 2023's 8582?

 

[Abby Normal]

I think you can with a 3115.

[BulldogTom]

Form 3115 is the correct way to do it.....but I would just add the capital improvements in 2023, sell the rental and be done with it.   I know that is not how it "should" be done, but the gain remains the same.   What changes is the amount of depreciation recaptured, but since it was not deducted against ordinary income there is no harm, so no foul.   If audited, the IRS should recognize immediately that there is no tax to be harvested.

But if you want a higher fee, do it via the 3115.

Tom
Longview, TX

[Lee B]

I would file the 3115 , deduct the depreciation and handle this situation correctly.

[Patrick Michael]

Wondering why a 3115 would be necessary since the returns can be amended.  There is no change in accounting method.  The original basis and other improvements have been depreciated. Just forgot this remodel.

[Abby Normal]

25 minutes ago, Patrick Michael said:

Wondering why a 3115 would be necessary since the returns can be amended.  There is no change in accounting method.  The original basis and other improvements have been depreciated. Just forgot this remodel.

It's a lot less work for both you and for the IRS to handle with a 3115 and just the current year. It basically works out the same in the end, except for some IRS interest.

[Lee B]

45 minutes ago, Patrick Michael said:

Wondering why a 3115 would be necessary since the returns can be amended.  There is no change in accounting method.  The original basis and other improvements have been depreciated. Just forgot this remodel.

Because omitting the depreciation for more than one is consider to be the adoption of an incorrect method which is handled by filing a 3115.

[DANRVAN]

12 hours ago, Patrick Michael said:

Wondering why a 3115 would be necessary since the returns can be amended.  There is no change in accounting method.  The original basis and other improvements have been depreciated. Just forgot this remodel.

That is a good point, however the remodel is treated as a separate asset for depreciation purposes.  3115 is your friend, use it.

[Patrick Michael]

Thanks everyone!  It's almost over!!!

[joanmcq]

Why are losses disallowed with the sale?  Is her income too low?

[BrewOne]

good question