Negative 481 adjustment

[uhtaxmba]

Depreciation was not deducted since 2013.  Rental was sold Jan 3, 2022, and was NOT rented in 2022.  From what I understand the over $90K in depreciation which was allowable and reduced the basis of the sold rental can be deducted in 2022 by filing Form 3115.  My question is since there is NO Sch E for 2022, and unless I override the adjustment line as it won't allow me to add a 481 adjustment as an adjustment, where do I put the amount of the adjustment?  If I override Sch 1, Part II and manually add the adjustment, red flags abound for efiling.

[sjrcpa]

I'd put it on a Schedule E. That's where it would have gone if it had been claimed in the first place.

[Just-Lisa-Now-]

why was it not rented in 2022?  was it still available for rent, just couldn't get an acceptable renter?  was it being remodeled or ?

[uhtaxmba]

Thanks for your reply, but you did not read my original email very thoroughly.  The answer to your question is in the original question.

[BobKamman]

One reason it may not have been rented in 2022 is that it was sold on January 3.  (See original post.)

What's the point of being able to override, if you never use it?  I suppose eventually we will all be OCD about submitting to the artificial intelligence of the IRS computer.  I can't find anything that says it must go on Schedule E, if that form is not being filed otherwise.   In the good old days, I would use Line 21.  What's the equivalent now, on Schedule 1?  Line 8z?  Where does it say I can't use that?  

Obviously, if someone can get away with omitting a required item on returns for more than a decade, it's not unreasonable to assume that IRS will not be looking too closely at whether the right number is in the right place for the final year.  

[uhtaxmba]

It seems that there are lines on Sch 1, 24z, for "other adjustments", but the software does not allow any input w/o overriding.  I had considered, as has already been suggested, to file a Sch E just for the adjustment which, if we want to efile, I will more than likely have to do since the software is NOT happy about efiling, and sometimes won't, if there are overrides.  

[Just-Lisa-Now-]

Last I saw Line 24 items were creating issues and getting rejections, it was like IRS wasnt ready for things reported on those lines yet.

And my point was if it was still a "rental" (even though it wasn't rented) during 2022 and wasnt pulled out of service for personal use or ? then you would still have a Sch E for 2022.

EDIT:   My mistake, I was reading the sale date as Jan 2023.

[TaxGuyBill]

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@uhtaxmba wrote:

Depreciation was not deducted since 2013. 

Back up a little bit ... was depreciation never claimed?  Or was it originally claimed on older returns, including the year it was "placed in service"? 

If depreciation was never claimed, I agree, file the 3115 and create a Schedule E just for the §481(a) Adjustment.  If it was correctly depreciated in the first year of service, then there are other problems.

[uhtaxmba]

It was never claimed.  Tax returns were self prepared in previous years.  Folks think just because they don't claim depreciation that when they sell the rental that the basis won't be reduced.  But it is "allowed or allowable".  This almost seems too good to be true.  Confirm for me that since there was NO depreciation claimed that they can take a negative adjustment for what would have been the total depreciation since they put the house into service.  Seems too good to be true.

[TaxGuyBill]

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@uhtaxmba wrote:

It was never claimed ... Confirm for me that since there was NO depreciation claimed that they can take a negative adjustment for what would have been the total depreciation since they put the house into service.

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That is correct (assuming you file Form 3115 to make that change).