Depreciation Recapture When Depreciation was Calculated Incorrectly

[jofijohnjoseph]

I have a new client who sold a rental property in 2020 after renting it for nine years.  She self-prepared all previous returns and the depreciation expense is essentially screwed up for almost all years, changing from year to year.  

For purposes of depreciation recapture, what should I do here?  Calculate the prior year depreciation as it actually was taken on Schedule E for every previous year?  Or should I calculate the "correct" depreciation expense and put the cumulative amount down?

Thanks in advance.

[TaxGuyBill · Accepted solution]

Add up the amount of depreciation that actually was taken.

Add up the amount of depreciation that should have been taken if it was done correctly.

Use the larger of those two numbers.

[Terry53029]

Sounds like like math errors, so you can't use 3115 to correct. What you need to do is correct the basis. Your basis is reduced if you took the wrong amount of depreciation on your tax return. If you claimed too little depreciation, you must decrease the basis by the amount you should have taken. If you took too much depreciation, you must decrease your basis by the amount you should have deducted, plus the part of the excess you deducted that actually lowered your tax liability for any year.

[joshuabarksatlcs]

Going off on a tangent....

I never ran into this situation, and I'm just being curious. 

If a surviving spouse missed claiming the stepped up basis, can it be corrected using Form 3115, or would it just be amended returns for open years.  

[Terry53029]

Form 3115 is only for a change in accounting methods (correcting deprecation error, such as taking no deprecation, to taking the correct deprecation). Myself, if my client was using the incorrect basis for a number of years, I would use the correct basis, and correct deprecation, as I explained in my earlier post

[sjrcpa]

That may also count as a change in accounting method. I'd have to research.