You finally invested in a rental property and are enjoying the many benefits of this investment. But you realize you did not depreciate your building in a prior tax year. Perhaps you forgot to capitalize some renovations in a prior year and want to recover those depreciation expenses. What should you do? Should you amend each tax year back to the year of the missed deduction and all subsequent tax returns? Ouch! That would be time-consuming and costly.
A better answer is that your tax professional can file Form 3115 Change in Accounting Method to change your depreciation method from improper – you did not depreciate an asset that should have been depreciated – to proper. This will require a calculation for the section 481(a) adjustment, which will catch up all your lost or missed depreciation deduction in the current tax year. The Form 3115 will need to be signed, dated and mailed separately by the taxpayer or business owner (if it applies to a partnership or S corporation).
Please understand that I cannot give you specific investment or legal advice, just guidance in these areas, and you should consult a professional licensed in these areas for specific advice before making any final decisions.
