Are there alternatives to using Form 3115 for recording catch up depreciation on rental real estate?
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Yes, there are alternatives to using Form 3115 for recording catch-up depreciation on rental real estate, but these alternatives are limited and depend on the specific facts and timing of the depreciation error or omission.
1. Amended Return (in Limited Circumstances)
If you have not yet adopted a method of accounting for the property, or if the error is due to a mathematical or posting error, you may be able to correct the depreciation by filing an amended return for the year(s) in which the error occurred. According to IRS Publication 946:
- You can file an amended return to correct the amount of depreciation claimed for any property in the following situations:
- You claimed the incorrect amount because of a mathematical or posting error made in any year.
- You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003.
- You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003.
Adoption of a method of accounting generally occurs when you use a permissible method on your first return for the property, or when you use the same impermissible method on two or more consecutively filed returns.
Time limits: The amended return must be filed by the later of:- 3 years from the date you filed your original return for the year in which you did not deduct the correct amount, or- 2 years from the time you paid your tax for that year.
If you have already adopted a method of accounting for depreciation (i.e., you have used the same method for two or more years), you generally cannot use an amended return to correct the error. Instead, you must use Form 3115 to request a change in accounting method.
2. Form 3115 (Change in Accounting Method)
If you have adopted an impermissible method of accounting for depreciation (e.g., by not claiming depreciation or by using the wrong method for two or more years), you must generally file Form 3115 to change to a permissible method and claim a "catch-up" adjustment under section 481(a). This is the standard and required approach for most catch-up depreciation situations on rental real estate.
3. Special Chief Counsel Guidance for Property Placed in Service Before December 30, 2003
For property placed in service in tax years ending before December 30, 2003, the IRS has stated that it will not assert that a change in computing depreciation is a change in method of accounting under section 446(e). In these cases, a taxpayer may file amended returns to implement the change in computing depreciation, and a section 481(a) adjustment is neither required nor permitted.
However, for property placed in service in tax years ending on or after December 30, 2003, the final regulations under section 446(e) require that a change in depreciation method, recovery period, or convention is a change in accounting method, and Form 3115 is required.
4. Mathematical or Posting Errors
If the error is simply a mathematical or posting error (not a method change), you may correct it by filing an amended return for the year of the error.
5. Late Election or Revocation of Election
Making a late depreciation election or revoking a timely valid depreciation election is not a change in method of accounting, but generally requires a private letter ruling and cannot be done on an amended return unless specifically allowed by IRS guidance.
6. Summary Table:
7. Conclusion
For most catch-up depreciation on rental real estate, especially for property placed in service after December 29, 2003, and where a method of accounting has been adopted, the only available method is to file Form 3115 to change your method of accounting and claim a section 481(a) adjustment. Amended returns are only permitted in limited circumstances, such as for mathematical or posting errors, or if no method has been adopted, or for property placed in service before December 30, 2003.
If you have a specific fact pattern (e.g., the number of years missed, the years in question, and whether you have previously filed returns for the property), please provide more details for a more tailored answer.
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