Claiming Missed Depreciation on Rental Property
The taxpayer converted a personal residence to a residential rental property in October 2018 and rented it through October 2024. No depreciation was ever claimed. The property was then taken out of rental service, renovated for sale, and was not rented or available for rent at all in 2025 before being sold on September 5, 2025.
I'm reporting the sale on Form 4797, including depreciation recapture based on the allowable depreciation. The allowable depreciation I’m including is the depreciation that should have been taken on the structure, and also a new hvac system they installed in 2019. I'm filing Form 3115 to request an accounting method change and claim the allowable depreciation that was never claimed through a negative § 481(a) adjustment. I'm also including a 2025 Schedule E with no rental income or expenses solely to report the § 481(a) adjustment and the previously unallowed passive losses released upon the disposition of the activity. I’m attaching the 3115 and supporting statements that explain everything I just said.
I have never had to do this before. Does this seem like the correct approach, especially the use of a Schedule E in a year with no rental activity?
