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Posted by Benjamin Yazersky CPA on April 12, 2007, 12:44 am
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>> New client who has owned a residential rental property since
>> 1981 and sold it in 2006.
>>
>> He did his own tax returns and never claimed any
>> depreciation expense. =A0Property was jointly owned with a
>> sister, who died in 1995. His original half of the property
>> would have been fully depreciated under ACRS years ago, but
>> the half inherited in 1995 with a stepped up basis would
>> have been only part way through a 27.5 year depreciation
>> schedule by the sale date.
>>
>> Obviously, he is not at all happy about the recapture of 25
>> years of allowable but unclaimed depreciation at the 25% tax
>> rate. =A0I presume that amended tax returns for 2003, 2004 and
>> 2005 can help with a very small portion of the unclaimed
>> depreciation, but that the unclaimed depreciation from 1981
>> through 2002 is lost.
>>
>> I have never attempted Form 3115 and it looks daunting, but
>> would that allow the claiming of 25 years of previously
>> unclaimed depreciation on his 2006 tax return?
> Form 3115 is the only correct answer, and if you don't do it
> or get it done for this client, he's being "underserved".
> And Form 3115 isn't that hard; you just have to decide which
> part applies to you/your situation and *not* get distracted
> by all the rest of the form and instructions that do not
> apply to you. But, the first time you do it, that means you
> should read all or mostly all of it - to be sure it doesn't
> apply to you/your situation - and I would suggest that you
> should *not* be billing your client for reading the part
> that doesn't apply to you/your/his situation.
>
> And remember, the depreciation that you get to claim is an
> ordinary deduction, not a capital loss or section 1231 loss
> and it should not be subject to the passive loss
> limitations, because the property has been sold.
I've got the flip side of that situation / mess.
New client-sold property in 2006-held for 20 yrs or so.
Multi family house - owner living in 1 of 4 units.
Taxes were prepared by the local travel agent on the corner
(who didn't have a clue), who depreciated 1/2 the house.
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
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