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Prior preparer used FMV of $360,000 for rental property depreciation basis instead of cost = $130,000 since 2005. Now accum depr greater than cost. How to fix?

toddcbad
Level 2

Prior preparer used FMV of $360,000 for rental property depreciation basis instead of cost = $130,000 since 2005. Now accum depr greater than cost. How to fix?

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TaxGuyBill
Level 15

From what I understand, using incorrect Basis is a "mathematical or posting error".

That means that Form 3115 does not apply, and the only thing that can be done is to amend the 'open' years.

Other than that, it can't be fixed, and the Basis is now $0 with no further depreciation.


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7 Comments 7
TaxGuyBill
Level 15

From what I understand, using incorrect Basis is a "mathematical or posting error".

That means that Form 3115 does not apply, and the only thing that can be done is to amend the 'open' years.

Other than that, it can't be fixed, and the Basis is now $0 with no further depreciation.


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toddcbad
Level 2
Thanks Bill. $0 basis was my first thought as well. This means that when taxpayer sells there will be a larger depreciation recapture than if it had been done correctly - essentially "negative basis" which we all know doesn't really exist in our world.
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sjrcpa
Level 15

Form 3115 Change in accounting method.


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toddcbad
Level 2
DCN 7, Recalculate tax for each year back to 2005 and bring forward to 2018 adjusting disallowed PALS along the way?
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sjrcpa
Level 15
I'm not sure. Also see Bill's answer below. I shot from the hip and did not research this.

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sjrcpa
Level 15
If there are disallowed PALs, maybe the correction - however done- will work out OK.

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toddcbad
Level 2
Thanks Bill. $0 basis was my first thought as well. This means that when taxpayer sells there will be a larger depreciation recapture than if it had been done correctly - essentially "negative basis" which we all know doesn't really exist in our world.
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