Form 3115 and timely filing

[LouD]

New client for me this year that needs 2008, 2009 and 2010 returns filed – client self-prepared his returns for all previous years. Client is self-employed and has several rental properties as well.

In looking at prior year returns, no depreciation has ever been taken on any of the rental properties ( I know, shocking on a self-prepared return) – so usually a pretty easy fix by filing Form 3115 on the most recent tax return to catch up the depreciation to correct amounts and then properly depreciate everything going forward.

Monkey wrench on this case is that one of the rental properties was sold in 2008 at a gain (first year that I’m working on) and everything that I’m reading (IRS publication and most recent Rev Procs) state that Form 3115 can only be filed on a “timely” return. Obviously, the 2008 return is not being filed timely, so does that mean client is out of luck with catching up on the missed depreciation since 2003?

I’m hoping that I’m missing something that would allow for the 3115 to be part of the 2008 return so any help or guidance to get me to the correct answer would be much appreciated.

[jainen]

>>does that mean client is out of luck with catching up on the missed depreciation since 2003?<<

Yes and no. No--he can't deduct unclaimed depreciation on a late return. Yes--he must reduce basis anyway, as if he had properly claimed it.