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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22646
Experience:  Taxes, Immigration, Labor Relations
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In 2012, I sold a rental house which was my previous residence

Customer Question

In 2012, I sold a rental house which was my previous residence for 13 years. When I started to rent the house in 2003, I figured the amount of the adjusted basis to do the tax, but hand't depreciated all those years which I did the Improvement before 2003. I only depreciated the asset I started to rent.
Can I add those asset this year? Or should I amend it from 2009?
Is anything to do with the deduction relating issue "previous residence transfer to rental house"
What is the best way to fix it to reduce the tax liability?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
It is possible to amend your previous tax returns and add depreciation deduction. Please be aware that if you will claim additional refund for your 2009 tax return - the statute of limitation will run out on Apr 15, 2013 - so you need to file an amended tax return before that date - otherwise your 2009 refund will be lost.

The better resolution might be to file Form 3115, Application for Change in Method of Accounting. which allows this change to be made after disposition of the property. This is an automatic change request. Using form 3115 is more simple solution compare to amending past tax returns.

Form 3115 http://www.irs.gov/pub/irs-pdf/f3115.pdf
Instructions http://www.irs.gov/pub/irs-pdf/i3115.pdf
Rev Proc 2008-52 http://www.irs.gov/irb/2008-36_IRB/ar09.html

LEV :

Specifically, take a look at Section 6 of the appendix of Rev. Proc. 2008-52
.01 Impermissible to permissible method of accounting for depreciation or amortization.
(1) Description of change.
(a) Applicability.
This change applies to a taxpayer that wants to change from an impermissible to a permissible method of accounting for depreciation or amortization (depreciation) for any item of depreciable or amortizable property:

(i) for which the taxpayer used the impermissible method of accounting in at least two taxable years immediately preceding the year of change (but see section 6.01(1)(b) of this APPENDIX for property placed in service in the taxable year immediately preceding the year of change);
(ii) for which the taxpayer is making a change in method of accounting under § 1.446-1(e)(2)(ii)(d);
(iii) for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A), § 167, §168, §197, §1400I, or §1400L(c), under § 168 prior to its amendment in 1986 (former § 168), or under any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)); and
(iv) that is owned by the taxpayer at the beginning of the year of change (but see section 6.17 of this APPENDIX for property disposed of before the year of change).

Customer :

In my case, which section of Form 3115 has to be filled out? Could you specify please? Do I have to answer yes or no for all questions in Part I to Part IV? Thanks!

LEV :
See section 1.446-1(e)(2)(ii)(d) of the regulations for more information and examples. - http://www.law.cornell.edu/cfr/text/26/1.446-1
Depreciation or amortization - Check this box and follow instructions for Part I to Part IV - http://www.irs.gov/pub/irs-pdf/i3115.pdf
This form is a little trickier - if you never used it - it might be better to have a local CPA to verify your filing.
Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

See section 1.446-1(e)(2)(ii)(d) of the regulations for more information and examples. - http://www.law.cornell.edu/cfr/text/26/1.446-1
Depreciation or amortization - Check this box and follow instructions for Part I to Part IV - http://www.irs.gov/pub/irs-pdf/i3115.pdf
This form is a little trickier - if you never used it - it might be better to have a local CPA to verify your filing.

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