Question here about depreciation, mostly because TurboTax doesn’t exactly make it intuitive and 4 years ago, I was a total landlording rookie, just going by the seat of my pants.
A little background: I converted my former townhome into a rental home in August of 2012. I have taken the depreciation every year, but this year, realized I was subtracting way too much in land value ($80K instead of $50K), which in turn, lowered by basis. The reason was I was using the tax valuation for an incorrect year and I also never factored in any purchase costs (closing, appraisal, origination fees, etc) as well as improvements I had made in the four years I lived in the property. Improvements that include a remodeled kitchen, bathroom, rebuilt mudroom, landscaping, etc which roughly are valued around $45K.
So for 2014 and 2015, I simply didn’t subtract the land value to get my basis, since my basis is very close to the cost of the purchase. In short, I was missing out on approx $80K extra of depreciation because of my mistakes.
Even though my 2014 and 2015 taxes have been filed, I wanted to make sure I can make this change in basis. Is this an IRS red flag (I’m assuming not, since this morning my returns were accepted)?
In the future, should I continue using my new basis amount I’ve used for 2014 and 2015?
Sorry for the barrage of questions, but I’ve always gotten the best advice when it comes to landlording on this forum.
