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I Have Not Taken Depreciation on My Rentals, Is It Too Late?

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January 25, 2024
Author: Cody Lawson

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We have a lot of clients who own rental properties. Some of them do not take depreciation on their properties, most do. Quite often we get someone who have not taken depreciation on their passive income properties all of a sudden want to start. The biggest question we get is, “Can I recapture depreciation for the whole time I have owned the property, or do I have to start from this point on?”. The simple answer is yes, now the question is how?

Some will say to do an amended return by filing a Form 1040-X. While this might be a decent strategy for some things, it might not be the best for real estate depreciation. One of the limitations is there is a time element involved, usually you can only do this for a 3-year period. That might suffice if an investor just purchased their property in the past year or two. Typically, this is not the best option though.

The best option that we have found is called “catch-up” depreciation. That is used to make adjustments for improper depreciation, either claiming too much or too little or not claiming any at all. Catch-up depreciation is a simple change in the accounting method where you change from a method of depreciation that is not allowed to one that is allowed. The form used for this change is the Form 3115. Unlike amended returns there is no time limitations with this form filing. I know some of you might be thinking this, so I will go ahead and answer it. Yes, the catch-up depreciation can be used for bonus depreciation as well. You’re welcome.

Keep in mind as we are in tax season, get with your CPA as soon as possible. The earlier they can see what you did last year, the better they will be able to service your needs. I know there is nothing like the thrill of waiting until the last minute to get things done, but in the case of taxes it could be costly. As always, we are here to help if you need anything.


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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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