Boyfriend & Girlfriend Share Rental Property - Depreciation

New clients come to me who are boyfriend & girlfriend and haven't filed their taxes since 2018. They share multiple rental properties.

However, the boyfriend was claiming 100% of the income, expenses & depreciation. Although they assure me they're shared rentals and they should be split evenly.

The rentals weren't in place until 2017.

So the question is what's the best way to go about doing this so that they're split evenly, mostly concerning the depreciation? My gut tells me Amend 2017 or form 3115.

Is there nothing wrong with just having the boyfriend claim 100% of the depreciation, then they both split the income & expenses?

Who's on the deeds? Who's on the mortgages? Who put up the cash? Who pays the expenses?

They're both on the Deed & Mortgage, and they split all the expenses.

Are we to assume they're held jointly? Not in an LLC or some other entity?

Presumably if they go their separate ways they're going to split the sales proceeds 50-50 or have one buyout the other?

Common law marriage does not apply?

I'd split everything 50-50 and report on the separate returns. You can't assign income.

I'd figure I'd split everything 50/50

My problem is I'm unsure what to do with the depreciation that the boyfriend claimed 100% on his 2017 tax return. Should I just let him continue to claim all that depreciation and split the income & expenses.

Or should I amend 2017 for the depreciation or file form 3115?

Not that this will lead to the technically correct answer, but how much was the depreciation in 2017? Did it get used or does he have PAL carryovers?

About $10,000 in depreciation! No Carryovers.

I'd lean toward amending. I believe you need at least two tax years to establish a method of accounting, which would then require a 3115.

Be cognizant that the boyfriend will owe tax, P&I. The girlfriend will not receive any refund if the statute has closed.

Non-filing interacts with method change rules in strange ways. Since ‘17 was the only return filed; amend if you can to show proper depreciation by the boyfriend and then, for him, follow that approach on subsequent returns. For the girlfriend, file a Form 3115 for the depreciation in 2020.