Correcting Missed Rental Depreciation

The majority of amended tax returns I complete are due to missed rental depreciation. Landlords who don’t take advantage of this annual expense, have typically passed up a five figure deduction and refund!

The following Q&A addresses how to determine whether or not you missed reporting this expense and what to do if you did.

  1. Where should I look to find out if I or my tax preparer included depreciation expense?
    Depreciation expense is reported on Schedule E, line 18 .

  2. What form do I need to complete to correct this omission?
    If you’ve never reported deprecation expense and have three or fewer year to correct, you should complete an amended tax return (Form 1040X) for each year.

  3. What if I need to correct more than three years of missed depreciation?
    If you look back and find you’ve missed more than three years of depreciation expense and have never reported it, you should complete Form 3115. This eight page tax form is intense and you should expect to pay a premium preparation fee.

  4. I began reporting depreciation expense when I first became a landlord, but missed a few years when I switched software/preparers…what should I do?
    Since you started off reporting depreciation expense, you can not use Form 3115 and should file Form 1040X for the last three tax years.

To read more about depreciation, click here.
To read more about depreciation recapture taxes, click here.