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Rental property bought in 2003. Incorrect c/b entered for asset and accountant did not depreciate every year. Now selling and c/b is wrong. How do I fix this? Help

dianejhart
Level 4
The cost basis originally entered for the asset in 2003 is incorrect. The previous acct did not depreciate it every year  and I don't know why. But now I'm trying to enter it and the c/b is wrong. She is selling it this year. How do I fix this?
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jeffmcpa2010
Level 8

I have seen a situation where the difference is material, where a 3115 was filed to correct the Cost Basis, and to calculate the depreciation which should have been taken.

The Depreciation difference (Under or Over reported...sounds like under in this case) was then reported as  an expense in the year of the correction as a current expense. (in the case I saw, it was the year before the sale).,

The Sale was then reported as if everything had been done correctly from the start. I have no experience as to the final outcome, as this was a recent filing. 

 

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6 Replies 6
jeffmcpa2010
Level 8

I have seen a situation where the difference is material, where a 3115 was filed to correct the Cost Basis, and to calculate the depreciation which should have been taken.

The Depreciation difference (Under or Over reported...sounds like under in this case) was then reported as  an expense in the year of the correction as a current expense. (in the case I saw, it was the year before the sale).,

The Sale was then reported as if everything had been done correctly from the start. I have no experience as to the final outcome, as this was a recent filing. 

 

View solution in original post

dianejhart
Level 4

Thank you!

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dkh
Level 11

Could the cost basis difference be an allocation for the land ?   

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TaxGuyBill
Level 14
  1. Verify that the Basis is wrong, including determining if "land" part part of the wrongness.
  2. Enter the correct Basis on the tax return you are preparing.
  3. For the "prior depreciation", enter the larger of (a) the amount of depreciation actually claimed or (b) the amount of depreciation that SHOULD have been claimed.
  4. Determine if amending prior years is worthwhile.

 

dianejhart
Level 4

And a 3115 also?

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TaxGuyBill
Level 14

@dianejhart wrote:

And a 3115 also?


If it was strictly using an incorrect Basis, no, form 3115 does not come into play.

If it was something like land being depreciated, not depreciating improvements, or some other incorrect method, that is when Form 3115 applies.