Forgot to depreciate my rental properties - what do I do now?

I'm in a bit of a panic after realizing I've made a pretty big tax mistake over the last few years. I own two rental houses that I've been managing, and I thought I was depreciating them properly in FreeTaxUSA all this time. Well, I just discovered that I completely missed setting up the depreciation! The first property I bought in 2021 and the second one in 2022, and I haven't been taking the depreciation deduction for either of them. I feel like such an idiot for missing this - it's a significant deduction I've been leaving on the table. My question is: how do I fix this for the previous tax years? And if I suddenly start claiming depreciation on both properties this year, will it trigger an audit from the IRS? I'm worried they'll think something fishy is going on when they see the sudden change in my returns. Anyone dealt with something similar or know what the right approach is here? Should I file amended returns for those years or is there another way to correct this? Really appreciate any advice!

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21 comments

Mei Chen

•8M

Don't panic! This is actually a common mistake that happens to many rental property owners, especially if you're handling your own taxes. The good news is that you can definitely correct this. For your situation, you'll want to file what's called a Form 3115 "Application for Change in Accounting Method" with your next tax return. This allows you to catch up on all the depreciation you missed without having to amend your previous returns. It's considered an automatic change, so the IRS generally grants these requests without much scrutiny. The form lets you take what's called a "Section 481(a) adjustment" that essentially gives you all the depreciation deductions you missed in one lump sum on your next return. The best part is you don't have to file amended returns for each year, which saves a lot of hassle.

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Mei Chen

•8M

Yes, you'll be able to claim all the missed depreciation from both 2021 and 2022 on your upcoming tax return. This is specifically what the Section 481(a) adjustment on Form 3115 is designed for. The IRS actually prefers this method over filing multiple amended returns. This shouldn't raise red flags because Form 3115 clearly indicates to the IRS that you're correcting a prior accounting method. They see these forms regularly for depreciation catch-ups. Just make sure you fill out the form correctly, especially the section explaining the change. I'd recommend using tax software that supports Form 3115 or consulting with a tax professional who has experience with rental properties to help you file properly.

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Liam O'Sullivan

•8M

I had almost the exact same situation last year with a rental property I bought in 2020 but forgot to depreciate for 2 years. I wasted hours trying to figure out the right forms and calculations until I found https://taxr.ai which literally saved my sanity. It analyzed my previous returns, identified exactly what I'd missed in depreciation, and guided me through filling out Form 3115. What really helped was that it showed me exactly which parts of the form to fill out for missed depreciation specifically (it's a really complicated form with lots of sections that don't apply). It also calculated my exact Section 481(a) adjustment amount based on my property details and purchase dates.

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Liam O'Sullivan

•8M

It analyzes your previous returns to identify the missed depreciation and does all the calculations for you. It then guides you through filling out the form correctly with specific instructions for your situation. It doesn't just give general advice - it provides personalized guidance based on your specific property details. Yes, it absolutely works for commercial properties too. Actually, the depreciation rules for commercial properties are even more complex (with different recovery periods), so having a tool that automatically calculates everything correctly is even more valuable in your situation.

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Amara Okonkwo

•8M

Just wanted to update - I tried https://taxr.ai after seeing it mentioned here and it was incredibly helpful! I've been stressing about my depreciation mistake for months, but it made the correction process so much easier than I expected. It analyzed my previous returns, showed exactly how much depreciation I had missed for each year, and calculated the exact catch-up amount. The step-by-step guidance for Form 3115 was really clear - it highlighted exactly which boxes to check and what to write in each section. My situation was slightly different (missed partial depreciation on a commercial property), but it handled it perfectly. Worth every penny for the peace of mind alone. My tax guy even commented on how correctly everything was prepared!

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Fatima Al-Sayed

•8M

If you're getting errors or delays from the IRS about your amended returns or Form 3115, you should try https://claimyr.com - it's been a lifesaver for me. When I filed my Form 3115 for missed depreciation last year, it got stuck in processing limbo for months with no updates. I couldn't get through to anyone at the IRS after trying for weeks. I was skeptical, but after seeing the demo at https://youtu.be/_kiP6q8DX5c I decided to give it a shot. They got me connected to an IRS agent in about 20 minutes instead of the 2+ hour wait I was experiencing before. The agent was able to locate my form, confirm it was received, and tell me exactly what was happening with it.

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Fatima Al-Sayed

•8M

They use an automated system that navigates the IRS phone tree and waits on hold for you. When an actual agent picks up, you get a call connecting you directly to that agent. It's not special access - just technology that handles the waiting part for you. They actually explain the whole process very clearly on their website. It's not about skipping the line - it's about not having to personally sit through hours of hold music. I was also worried about missing the call when the agent finally picked up, but their system handles that perfectly too.

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Giovanni Marino

•8M

I need to eat my words. After my skeptical comment above, I actually tried https://claimyr.com for an issue with my Form 3115 depreciation adjustment that had been pending for months. I figured I had nothing to lose since I couldn't get through on my own. Holy crap it actually works! Got a call back in about 30 minutes connecting me to an actual IRS agent. Found out my form was flagged for manual review because of the large adjustment amount (over $18k in missed depreciation). The agent was able to expedite it once I explained the situation. Seriously wish I had known about this months ago. Would have saved me so much stress and uncertainty. For anyone dealing with depreciation issues that require talking to the IRS - this service is 100% worth it.

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NightOwl42

•8M

One thing nobody's mentioned yet - if your properties are residential rental real estate, they should be depreciated over 27.5 years using the straight-line method. Commercial property is 39 years. Make sure you're using the correct timeline when you catch up on your missed depreciation! Also, when you file Form 3115, you'll need to include a statement explaining the change in accounting method. Keep it simple but clear - something like "Taxpayer is changing from improperly not claiming depreciation on residential rental property to properly claiming depreciation under Section 168.

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NightOwl42

•8M

You don't typically need to attach the actual closing documents to Form 3115, but you should definitely keep them in your records. What you will need to include is the date the properties were placed in service, which would be when they were available for rent (not necessarily when you purchased them). If the properties were available for rent immediately after purchase, then the acquisition date would be the placed-in-service date. Make sure you also have documentation showing they were rental properties during the years in question, like lease agreements or rental income records. The IRS may never ask for these, but it's good to have them ready just in case.

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Jade Santiago

•3M

I went through this exact same situation with three rental properties I bought between 2020-2022. The stress was overwhelming until I realized how straightforward the fix actually is with Form 3115. A few practical tips that helped me: 1. Calculate your basis correctly - for residential rentals, you can only depreciate the building, not the land. Your purchase contract or property tax assessment should show the land vs building allocation. 2. Remember that depreciation starts when the property is "placed in service" for rental use, not necessarily when you bought it. If you spent time renovating before it was rentable, that affects your start date. 3. The Section 481(a) adjustment on Form 3115 will be substantial (mine was over $35k total), but don't worry - this is exactly what the form is designed for. The IRS expects large catch-up amounts. 4. File Form 3115 with your current year return, not as an amendment to prior years. This is key - it saves you from the hassle and potential issues of multiple amended returns. One last thing - make sure you continue depreciating correctly going forward! The mistake is fixable, but you don't want to repeat it. Good luck!

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Saanvi Krishnaswami

•2M

This is incredibly helpful, especially the point about land vs building allocation! I never even thought about that distinction. Do you happen to know what percentage is typically allocated to land vs building for residential properties? I'm looking at my closing documents now and I don't see a clear breakdown. Would the county assessor's office have this information, or is there a standard method to determine it? Also, regarding the "placed in service" date - I did do some minor repairs and cleaning on both properties before renting them out (maybe 2-3 weeks after closing). Should I use the repair completion date or the date I first listed them for rent as the placed in service date?

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