Any reason not to take depreciation on a rental property?

[Gunnar F.]

My current accountant has apparently not been taking depreciation on my rental properties every year. I am a rank novice in this area. Just wondering whether there could be any strategic benefit  to not taking the depreciation deductions in this manner? Another accountant advises we have three options:

1.  Change the accounting method (file form 3115) for the current year -  and take all the depreciation that would have been taken up to that point, that would mean you would have a large loss in the current year on your rental property (info needed for that is, how much you paid, cost of improvements, and when placed into service.

2. Amend the past 3 years (2012, 2013, 2014), this would disallow the change in accounting method, and claim the depreciation that should have been taken during those 3 years, and reduce the basis for the additional depreciation that was allowable

3. Do nothing, lose the depreciation deductions, reduce the basis when sold, and pay any and all taxes related to the sale of the property.

He concludes: Option 2 could be good depending on your anticipated refunds, however, generally option 1 is better though.

[Steven Hamilton II]

Originally posted by @Gunnar F.:

My current accountant has apparently not been taking depreciation on my rental properties every year. I am a rank novice in this area. Just wondering whether there could be any strategic benefit  to not taking the depreciation deductions in this manner? Another accountant advises we have three options:

1.  Change the accounting method (file form 3115) for the current year -  and take all the depreciation that would have been taken up to that point, that would mean you would have a large loss in the current year on your rental property (info needed for that is, how much you paid, cost of improvements, and when placed into service.

2. Amend the past 3 years (2012, 2013, 2014), this would disallow the change in accounting method, and claim the depreciation that should have been taken during those 3 years, and reduce the basis for the additional depreciation that was allowable

3. Do nothing, lose the depreciation deductions, reduce the basis when sold, and pay any and all taxes related to the sale of the property.

He concludes: Option 2 could be good depending on your anticipated refunds, however, generally option 1 is better though.

 FIRE YOUR ACCOUNTANT. Find someone savvy about real estate. If you accountant doesn't have investment property move on. How he made that mistake is unbelievable. When you sell you are required to recapture the depreciation you did or COULD HAVE taken.

I would do it in the current year as you can correct from the beginning when they were placed in service. Option 1 is the best option and the correct way to proceed.

Feel free to PM me if you have specific questions.