Today TaxMama hears from Tim in the TaxQuips Forum. He tells us. “I’m a career military guy and bought a house in 1994. In 1996 we were transferred and turned the property into a rental house. Over the first few years of this period I depreciated the home; but stopped in 2002 on the advice of a friend (not wise). Is it possible to amend my past tax returns to capture the lost deductions? How do I go about re-starting the depreciation on my 2010 tax return?
Dear Tim,
What a terrific friend!
I don’t mean to chide you. But that’s one of my pet peeves, listening to well-meaning, but ignorant friends, instead of consulting a tax professional for tax advice.
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Friends are terrific – to have fun with, and socialize with. But…it’s like asking some well-meaning buddy to fix a cavity in your tooth, rather than a dentist. Yeah, he heard some tips about how to do that. Don’t bother going to a dentist who spent years studying – or a tax professional who is constantly studying the new tax laws.
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Generally, I would tell you that you have lost all the depreciation for 2002 – 2006. That statute of limitations for refunds expires three years after you file the tax return. However, any wise tax professional would tell you there IS a way to recoup all these lost deductions.
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And you may not even have to file an amended return – if you haven’t filed your 2009 tax return.
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If you have, you have two choices:
1) File an amended 2009 return and get it all back now, with interest.
2) or Wait until you file your 2010 return and get caught up then.
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Oh, how do you get it all back? Simple, just file a Form 3115 with the correct depreciation calculation and take all missed depreciation as a deduction in one year.
IRS issued a special procedure to make this possible, back in 2002.
You can try to do it yourself. Read Vern Hoven’s article before you do. (The link to it is in the post above.) Better yet, for this one thing, find a tax pro who understands how to do this. Not all do.
And remember, you can find answers to all kinds of questions about depreciation catch-up, and other tax issues, free. Where? Where else? At www.TaxMama.com.
