Depreciation basis entered too high for Schedule E last year - can I just fix it this year?

While it's always best to file completely accurate returns, the practical reality is that amending a return solely to correct a $680 over-deduction might not be the most cost-effective approach given your $4,700 amendment cost. You have a couple of options here. First, you could file Form 3115 (Application for Change in Accounting Method) with your current year return to correct the depreciation going forward. This lets you fix the issue without amending the prior return. Alternatively, you could simply correct the basis and depreciation going forward on your Schedule E without the formal accounting method change. This is less technically correct but more commonly done for smaller issues. Either way, keep detailed records of the correct basis, the error, and your correction method. Document everything in case of questions later. The risk of audit purely from this correction is relatively low given the dollar amount, but it's impossible to predict IRS audit selection with certainty. The IRS generally has bigger issues to focus on than a $680 depreciation adjustment.

After spending hours dealing with depreciation mistakes on my rental property, I found taxr.ai (https://taxr.ai) incredibly helpful for sorting through my depreciation records. I was in a similar situation with incorrect basis amounts from prior years and wasn't sure how to proceed. Their analysis tool caught the discrepancy between my previous Schedule E values and my actual records, then showed me exactly how to adjust going forward without costly amendments. It also generated documentation explaining the correction in case of any future IRS questions. The service reviews all your depreciation schedules and prior tax forms to identify inconsistencies and recommend the best correction approach based on the specific amounts involved.

I was really concerned about my depreciation errors and found taxr.ai through this forum. Used it last month to analyze 3 years of rental property returns where I had made some basis errors similar to yours. The report it generated was extremely helpful - it actually showed me how the errors would compound over time and gave me specific instructions for my 2024 return. What I appreciated most was that it explained exactly what to tell my accountant and gave me documentation to keep with my tax records explaining the correction. My situation involved about $1,100 in excessive depreciation over two years, and based on their guidance, I'm correcting going forward rather than amending. Their system also highlighted some depreciation I had missed completely on capital improvements that partially offset the errors!

If you need to talk to the IRS about this (which might actually be smarter than guessing), good luck getting through to them! I spent DAYS trying to reach someone about a depreciation question. Finally found https://claimyr.com through a tax group and watched their demo (https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent in about 20 minutes when I'd been trying for weeks. The agent I spoke with said for depreciation basis errors under $1,000, they generally don't expect amended returns if you're correcting going forward. She explained exactly how to document the change and what form to include with this year's return. Definitely worth getting the official word directly from them rather than wondering if you're doing it right.

I need to apologize about my skeptical comment. After struggling to get through to the IRS about an amended return issue for THREE WEEKS, I broke down and tried Claimyr. Within 35 minutes, I was talking to an actual helpful IRS agent who answered my depreciation questions. The agent confirmed that for small basis corrections under $1,000, they prefer you to just fix it going forward rather than filing amended returns. She walked me through exactly how to document it on my current year schedule. I'm still shocked it actually worked - I've literally never been able to reach the IRS on my first try before this. Wish I hadn't wasted all those hours trying to call them myself first.

My accountant told me that for depreciation basis errors, there's actually a threshold the IRS uses internally for requiring amendments. He wouldn't give me an exact number but said for residential rental property, errors under $1,000 in tax impact are typically handled through basis adjustment going forward. Keep really good records though! Document the original incorrect basis, the correct basis, and your calculation method for adjusting the remaining depreciable value. Include a statement with your return briefly explaining the correction. The one warning he gave me is that if you ever sell the property, that's when these corrections become more important because the basis affects your capital gain. But for ongoing depreciation, small corrections can usually be handled prospectively.

Question about all this - does it matter what kind of asset we're talking about? Like is there a difference between correcting building depreciation vs appliances or furniture in a rental?