form 3115 and 2 year rule?

Technical topics regarding tax preparation.
#1
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TP did not claim rental deduction including depreciation on 2021 original returns and now want to amend to include that.
I understand that depreciation can not be directly added to the amended return but rather file on 2022 tax return by form 3115.
The depreciation is a small amount about $4000.
I happen to find an article online mentioning there is a 2 year rule. I have not found such info anywhere else including 3115 instructions. Does anyone know about it?

"The 2-year Rule
The use of an incorrect method of depreciation is considered the use of an incorrect accounting method. Once an incorrect accounting method has been used for two years, Form 3115 is required to change accounting methods back to a correct method, or to begin taking depreciation.
Note: If no depreciation had been taken and only one year has passed the return may be corrected via amendment because the incorrect method had only been used for one year."
 

#2
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I just had this discussion with a client. I found that a taxpayer who has used an impermissible method of depreciation for only the prior year has a choice to file Form 3115 for the current year or to amend the prior year as long as the current year's return hasn't yet been filed. See section 6.01(1)(b) of Rev. Proc. 2022-14, 2022-7 I.R.B. 502, 515:

(b) Taxpayer has not adopted a method of accounting for the item of property. If a taxpayer does not satisfy section 6.01(1)(a)(i) of this revenue procedure for an item of depreciable or amortizable property because this item of property is placed in service by the taxpayer in the taxable year immediately preceding the year of change (“1-year depreciable property”), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year depreciable property by filing a Form 3115 for this change, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment that is attributable to all property (including the 1-year depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for a 1-year depreciable property by filing an amended federal income tax return, or an administrative adjustment request under § 6227 (AAR), as applicable, for the property’s placed-in-service year prior to the date the taxpayer files its federal income tax return for the taxable year succeeding the placed-in-service year.
 

#3
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NoCalCPA85 wrote:I just had this discussion with a client. I found that a taxpayer who has used an impermissible method of depreciation for only the prior year has a choice to file Form 3115 for the current year or to amend the prior year as long as the current year's return hasn't yet been filed. See section 6.01(1)(b) of Rev. Proc. 2022-14, 2022-7 I.R.B. 502, 515:

(b) Taxpayer has not adopted a method of accounting for the item of property. If a taxpayer does not satisfy section 6.01(1)(a)(i) of this revenue procedure for an item of depreciable or amortizable property because this item of property is placed in service by the taxpayer in the taxable year immediately preceding the year of change (“1-year depreciable property”), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year depreciable property by filing a Form 3115 for this change, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment that is attributable to all property (including the 1-year depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for a 1-year depreciable property by filing an amended federal income tax return, or an administrative adjustment request under § 6227 (AAR), as applicable, for the property’s placed-in-service year prior to the date the taxpayer files its federal income tax return for the taxable year succeeding the placed-in-service year.


Great! Thank you so much!
 


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