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ABC Accounting Group
ABC Accounting Group, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 668
Experience:  Business Consultant/Accounting Manager
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Purchased a commercial rental real estate in 2006.

Customer Question

Purchased a commercial rental real estate in 2006. Depreciated the building on the 2006 and 2007 tax return, form 1040-Sch E. For tax years 2008-2015 the depreciation on the building was never deducted (must have been deleted by mistake). Do I file 1040X for tax years 2013-2015 or file form 3115 for open and closed years? Is the depreciation deduction for years 2008-2012 lost?
Submitted: 2 months ago.
Category: Tax
Customer: replied 2 months ago.
2013 tax return was filed on extension. If I need to amend the 3 year statu of limitation does not end today. Is that correct?
Expert:  ABC Accounting Group replied 2 months ago.
Hi. Great Questions. Use 1040x. Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. For 2013, it would be from the date you filed, which would be in Oct.
Expert:  ABC Accounting Group replied 2 months ago.
Let me know if you have any questions and if this helped. Thank you.
Customer: replied 2 months ago.
i read that form 3115 can be used for unclaimed depreciation is that incorrect?
Expert:  ABC Accounting Group replied 2 months ago.

Yes - if you are changing accounting methods.

Customer: replied 2 months ago.
I found this answer to a similar question posted on justanswer. The only difference in my situation is that depreciation was claimed for the first 2 years the asset was placed in service. Is it because of the depreciation taken in the first 2 years that I can not report unclaimed depreciation on form 3115?Rev. Proc. 96-31 states that a change from not claiming the depreciation or amortization allowable to claiming the depreciation allowable is a change in accounting method requiring consent of the IRS commissioner. The revenue procedure provides automatic consent for a taxpayer to change the accounting method where it has claimed less depreciation or amortization than allowable and affords the taxpayer relief from filing under Rev. Proc. 92-20, which generally discusses changes in accounting method disclosures. The omitted depreciation from prior years will be taken into account in the year of change through a negative u481(a) adjustment (used in situations where a taxpayer has depreciated or amortized an asset too quickly). This is a significant, taxpayer-favorable concession on the part of the IRS.sibalwinktax :
There are two options available to fix this and they are one, file amended return for open tax years to claim depreciation for those years. Or Two, follow the procedure as outlined in IRS Rev-Proc 96-31 to file Form 3115 - Application for change in accounting method. Under Rev-Proc 96-31 Form 3115 approval is automatic for a change due to failure to claim depreciation.
winktax :
There are two options available to fix this and they are one, file amended return for open tax years to claim depreciation for those years. Or Two, follow the procedure as outlined in IRS Rev-Proc 96-31 to file Form 3115 - Application for change in accounting method. Under Rev-Proc 96-31 Form 3115 approval is automatic for a change due to failure to claim depreciation.d in IRS Rev-Proc 96-31 to file Form 3115 - Application for change in accounting method. Under Rev-Proc 96-31 Form 3115 approval is automatic for a change due to failure to claim depreciation.winktax :
"Under a blanket consent provided by Rev. Proc. 96-31, 1996-20 IRB 11, taxpayers now can correct certain erroneous depreciation methods that have provided less than the allowable depreciation. Unclaimed depreciation, for closed as well as open years, is restored through a Section 481(a) adjustment that reduces income in the year of change."winktax :
Qualification - To qualify for the blanket consent to changing methods of depreciation, a taxpayer must change to a permissible method and complete and file a Form 3115 in accordance with the procedure. The form must be filed within the first 180 days of the year of change (including extensions) or the last day of a short tax year of less than 180 days, and a copy must be attached to the taxpayer's (timely) filed return for that year. The taxpayer should note clearly at the top of the Form 3115 "Automatic Method Change Under Revenue Procedure 96-31." The negative u481(a) adjustment, which is equal to the difference, between the total amount of depreciation/amortization previously taken and the total amount allowable for open and closed years prior to the year of change, will be picked up entirely in the year of change. No user fee is required, and the filing will not be acknowledged by the IRS. To effect the automatic change, a taxpayer must complete and file Form 3115 in duplicate. Rev. Proc. 96-31 applies only where there is a negative u481(a) adjustment (or only where a taxpayer has depreciated or amortized an asset too slowly).winktax :
Here is an IRS Chief Counsel legal memo outlining the application of Rev Proc 93-31, form 3115, section 481(a) adjustment. This may provide further guidance for correcting your issue: http://www.irs.gov/pub/irs-wd/…winktax :
I hope the above answers your question, if so, please click the accept button, otherwise please provide additional information and or ask clarifying questions so that I can provide a more specific answer. Thank You.winktax :
Opps - Main point. By following the form 3115 procedure, the tax payer can claim all back depreciation in the current year which may significantly reduce income in the current year.
Expert:  ABC Accounting Group replied 2 months ago.
I have helped with the 3115 before. You can do this. It just needs approval by the tax dept. This is usually performed with an accounting change, but it is an option.
Expert:  ABC Accounting Group replied 2 months ago.
We can schedule something over the weekend via phone. I worked with another client on this via phone.