Missed depreciation is a lot more prevalent than some of us think. The most common occurrence of miscalculated or missed depreciation is on the rapidly increasing prevalence of rental properties. You need to know different kinds of clients and how to correct mistakes made by taxpayers or other preparers.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Can you clarify an automatic versus a non-automatic change?
A: The IRS has compiled a list of accounting method changes that are eligible for automatic consent. The current list can be found in Rev. Proc. 2023-24. To make a change that is not on the list, the request for the change is non-automatic, which requires a private letter ruling (PLR) request. The IRS will issue a PLR if approved.
Q: Isn’t missed depreciation an error and not an accounting change?
A: Technically, it is an impermissible method of accounting. To correct omitted depreciation, file Form 3115, Application for Change in Accounting Method, requesting automatic approval of the accounting method change to a permissible method, which would be taking depreciation as an expense.
Q: What are the errors that do not require Form 3115 to be filed in the depreciation realm? Is a placed in service date error or a change of use for the property a change per DCN 7?
A: A few examples are a mathematical error, posting error, or a change to claim or revoke §179. Placed in service date is an error. To correct, only file amended returns for open years. Change of use is neither an error or a Form 3115 change.
Q: If a client has multiple rental properties in which no depreciation has been taken, would that require multiple Forms 3115, or can multiple properties be handled on one form?
A: File one Form 3115 per business. So in this case, separate forms would be filed.
To learn more about reporting missed depreciation on Form 3115, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.