Level 2

Question

Recapture of Depreciation

Forum|Forum|2 years ago
February 20, 2024
2 replies
13 views

Good morning everyone.

I had someone come to me yesterday and told me that they purchased a home in 2005 and did some capital improvements shortly thereafter.

In 2016, their old tax preparer gave the return to someone else in their office and the new preparer stopped depreciating the property. The property hasn't been depreciated since then on the Schedule E.

What is the best practice to recapture the depreciation and receive the missed savings?

This topic has been closed for replies.

IRonMaN

Level 15

Has the property been rented since 2005, or just depreciated? I'm not really clear on that based on how your post reads.

Slava Ukraini!

R

RJK0308Author

Level 2

From my understanding, it was originally purchased as a primary residence. However, it's a 3-family residence. Therefore, it's always been rented (at least partially).

Approximately in 2007 or 2008, the owner moved out and it became an investment property since then.

abctax55

Level 15

You'll need to do some research regarding Form 3115.

It's not 'recapture' of depreciation; it's depreciation not taken.

Also research "allowed" vs allowable depreciation.

HumanKind... Be Both

T

TaxGuyBill

Level 15

@RJK0308 wrote:

In 2016, their old tax preparer gave the return to someone else in their office and the new preparer stopped depreciating the property. The property hasn't been depreciated since then on the Schedule E.

receive the missed savings?

The old office should amend 2020, 2021 and 2022 for free. And the old tax office should pay the client for the missed tax savings from 2016-2019.

Unfortunately, Form 3115 does not apply because this was just a "mathematical or posting error".

R

RJK0308Author

Level 2

I completely agree with you. However, based on my conversation with the person, the old preparer hasn't offered to do so. Furthermore, they don't have confidence in the old preparer anymore to do it correctly.

T

TaxGuyBill

Level 15

The old tax office is responsible for their mistake and need to compensate your client for it (they may file an E&O claim with their insurance for their mistake).

Even if they don't want to amend, they need to pay your client the amount of the 'extra' tax your client had to pay due to the preparer's mistake. Your client may want to insist that the old preparer reimburse them for that 'extra' tax, or file a lawsuit (probably small claims court).

Sign up

Login with SSO

Let's get you signed in

Login with SSO

Scanning file for viruses.

This file cannot be downloaded