Amended return for depreciation?

[JLee]

I rented spare bedrooms in my house in 2013 and 2014, and recently learned that I was supposed to be depreciating a portion of my house during that time. I'm doing so for 2015...but is this something I can file amended 2013/2014 returns to fix? Any guidance would be greatly appreciated : )

[COlady]

Did you report the income that you received?

[JLee]

Did you report the income that you received?

Yes.

[DevoCPA]

Are they short-term rentals? If not, depreciation can not create a rental loss. How big are the bedrooms in proportion to the rest of the house? You could file 1040x's but the amount might be so small it would not be worth it.

[JLee]

Are they short-term rentals? If not, depreciation can not create a rental loss. How big are the bedrooms in proportion to the rest of the house? You could file 1040x's but the amount might be so small it would not be worth it.

The house was my primary residence at the time, so I believe I couldn't allow it to cause a loss anyway.  The bedrooms are about 15% of the total square footage, plus a bathroom and shared living / garage space.

If it's not worth worrying about, that makes life easier.  I am now living elsewhere and renting all rooms in the house, so I'll make sure to do it for 2015/2016. :)

[arebelspy]

Can you just do it all this year as catch up depreciation, rather than going back and amending?

[JLee]

Can you just do it all this year as catch up depreciation, rather than going back and amending?

Hmm. Looks like Form 3115 allows that. I'll have to see how to get that form in the tax software I'm using.

Edit: FreeTaxUSA does not support Form 3115. However, I just read this and it appears I may have to file the form before my return, and then send a copy in with my taxes. Does this mean I won't be able to e-file this year?

[arebelspy]

Can you just do it all this year as catch up depreciation, rather than going back and amending?

Hmm. Looks like Form 3115 allows that. I'll have to see how to get that form in the tax software I'm using.

Edit: FreeTaxUSA does not support Form 3115. However, I just read this and it appears I may have to file the form before my return, and then send a copy in with my taxes. Does this mean I won't be able to e-file this year?

I mean, if you're amending you'll have to send that in by paper anyways, not eFile, so either way it seems like something will be paper...

[JLee]

Can you just do it all this year as catch up depreciation, rather than going back and amending?

Hmm. Looks like Form 3115 allows that. I'll have to see how to get that form in the tax software I'm using.

Edit: FreeTaxUSA does not support Form 3115. However, I just read this and it appears I may have to file the form before my return, and then send a copy in with my taxes. Does this mean I won't be able to e-file this year?

I mean, if you're amending you'll have to send that in by paper anyways, not eFile, so either way it seems like something will be paper...

I've never filed an amended return - no idea how it works. :(

[marblejane]

You're required to mail in amended returns, so yeah, the options are to prepare paper amended returns for 2013 and 2014, or a paper return for 2015. I did amended returns to fix my rental property basis, and I'd say if you have an option to file for catch-up in this year's return, it should be less hassle/paperwork than filing amended returns.

[JLee]

You're required to mail in amended returns, so yeah, the options are to prepare paper amended returns for 2013 and 2014, or a paper return for 2015. I did amended returns to fix my rental property basis, and I'd say if you have an option to file for catch-up in this year's return, it should be less hassle/paperwork than filing amended returns.

I believe I can file a Form 3115 and then file catch-up depreciation this year. That sounds like much less of a headache than filing amended returns - I just have to figure out 3115 now. :)

[Miss Prim]

I don't think you HAVE to claim depreciation, just that you CAN claim depreciation.  Sometimes it just muddies the waters when you go to sell and you have to pay capital gains on the depreciation that you claimed in prior years.  If you are not going to have renters for many years, you might just want to not claim depreciation.  Either way, I wouldn't bother filing an amended return, but that is just me.  I have a rental property and do my own taxes.  You might want to check with someone who is a CPA.

                                                                                             Miss Prim

Sorry, just noticed that you turned your whole primary residence into a rental.  Just ignore what I wrote!

[arebelspy]

I don't think you HAVE to claim depreciation, just that you CAN claim depreciation.

You do, or they will recapture the depreciation you should have taken, even if you didn't.  It's quite silly.

[Miss Prim]

I don't think you HAVE to claim depreciation, just that you CAN claim depreciation.

You do, or they will recapture the depreciation you should have taken, even if you didn't.  It's quite silly.

Thanks arebelspy, I didn't know that!  I always figured it was like taking a deduction for a home office, which we don't do for husband's business. 

                                                                                         Miss Prim

[JLee]

Any CPA's here want to walk me through how this form works? I'll happily pay for some time - also considering using Fishback Tax as recommended by MMM.

[MNBen]

Just sent you a private message.  I made the same mistake and recently paid a CPA to correct it for me as I wasn't comfortable doing that on my own.  So I have my forms and understand what the CPA did to correct it, if you'd like the information.  Contact via private message please if interested.

[JLee]

Thanks MNBen!

My next problem is that my 2013 tax returns are nowhere to be found (yet somehow I have 2007-2014) and Arizona takes 30 days to send me a copy of my prior year state return, which pushes me into April.  Can I file my 2015 taxes now and then file amended returns for 2013 and 2014 afterwards?

[JLee]

Looking into it further, I think Form 3115 is the way to go - knock out both years without filing amended returns.

I posted this on another forum, but thought some smart people here might be helpful too :)

Alright...I'm tackling Form 3115 now and I'm unsure what to do here.

I am claiming rental property depreciation for 2013 and 2014. I have selected DCN 7:

Depreciation or amortization (impermissible to permissible) (sections 56, 167, 168, 197, 280F, 1400I, 1400L, 1400N,
and former section 168)—from an impermissible method to a permissible method for changes allowed under Regulations
section 1.446-1(e)(2)(ii)(d), and for depreciable property owned at the beginning of the year of change. Complete Schedule E of
Form 3115. An applicant changing its method of accounting for depreciation because of a change described in designated
automatic accounting method change number 10 (sale or lease transactions) must file Form 3115 according to the designated
change number 10. Additionally, a qualified small taxpayer qualifies for a reduced Form 3115 filing requirement. See section
6.01 of Rev. Proc. 2015-14.

I am stuck on Box 14.  I selected 'No' to Box 13 ("Is the applicant requesting to change its overall method of accounting"), which I think is correct...?  Now for 14, it's asking for this:

14 If the applicant is either (i) not changing its overall method of accounting, or (ii) changing its overall method of
accounting and changing to a special method of accounting for one or more items, attach a detailed and
complete description for each of the following (see instructions):
a The item(s) being changed.
b The applicant’s present method for the item(s) being changed.
c The applicant’s proposed method for the item(s) being changed.
d The applicant’s present overall method of accounting (cash, accrual, or hybrid).
15 a Attach a detailed and complete description of the applicant’s trade(s) or business

Do I just include a letter saying I rented rooms in my house and didn't claim depreciation for 2013 and 2014?  I don't have a present method for changing items...I just didn't claim depreciation. To my knowledge, I'm not using cash, accrual, or hybrid accounting either.

I did find this: https://www.irs.gov/pub/irs-drop/rp-15-14.pdf; would I phrase my letter to state that I claimed no depreciation and am requesting a change to claim the allowable depreciation?

(b) Statements required. A taxpayer (including a qualified small taxpayer
as defined in section 6.01(4)(b) of this revenue procedure) must provide the following
statements, if applicable, and attach them to the completed Form 3115:
(i) a detailed description of the present and proposed methods of
accounting. A general description of these methods of accounting is unacceptable (for
example, MACRS to MACRS, erroneous method to proper method, claiming less than
the depreciation allowable to claiming the depreciation allowable);
(ii) to the extent not provided elsewhere on the Form 3115, a
statement describing the taxpayer’s business or income-producing activities. Also, if the
taxpayer has more than one business or income-producing activity, a statement
describing the taxpayer’s business or income-producing activity in which the item of
property at issue is primarily used by the taxpayer;
-29-
(iii) to the extent not provided elsewhere on the Form 3115, a
statement of the facts and law supporting the proposed method of accounting, new
classification of the item of property, and new asset class in, as appropriate, Rev. Proc.
87-56 or Rev. Proc. 83-35. If the taxpayer is the owner and lessor of the item of
property at issue, the statement of the facts and law supporting the new asset class also
must describe the business or income-producing activity in which that item of property is
primarily used by the lessee;
(iv) to the extent not provided elsewhere on the Form 3115, a
statement identifying the year in which the item of property was placed in service by the
taxpayer;

Box 17: Will the proposed method of accounting be used for the applicant’s books and records and financial statements?

I...don't have "books and records and financial statements" -- by this do they mean "are you going to continue to depreciate your rental property in the future"? I'm inclined to check 'yes' but I'm not sure.

Box 26:

Enter the section 481(a) adjustment. Indicate whether the adjustment is an increase (+) or a decrease (-) in
income. ▶ Attach a summary of the computation and an explanation of the methodology
used to determine the section 481(a) adjustment. If it is based on more than one component, show the
computation for each component. If more than one applicant is applying for the method change on the
application, attach a list of the (a) name, (b) identification number, and (c) the amount of the section 481(a)
adjustment attributable to each applicant.

For this, do they just want math showing how I came up with my numbers, e.g.:
$112k depreciable property put in service in 2013
Rented 11% of the square footage for 6 months in 2013
$112k property over 27.5 years is $4072/yr or $339.39/mo, 11% of that x6 is $224

2015 comes to $355, so depending how much tax liability I had for 2013 and 2014 I could potentially end up with an extra $579? Or just not pay tax on $579, so a refund of $144?

If any CPA wants to review this and the accompanying Schedule E's to make sure I don't fuck it up, I'd be happy to send some Paypal your way.