Does It Matter When I Bought My Property?

Individuals and most businesses file their tax returns based on a calendar year. Filing your return for a calendar year reports the amount of tax you do or do not owe to the IRS.

If you have already capitalized and depreciated your real estate and reported it on a previously filed tax return, you can still utilize the accelerated depreciation and ROI boost from our report. 

There are just a few items you need to consider before doing so. Let’s review.

Accelerating Depreciation = Cash Today

Accelerating depreciation gives you cash today at the expense of tomorrow—it is all about the time value of money. In other words, it’s the power of what you can do with that cash in hand today that pushes you further toward your goals versus waiting for the cash tomorrow.

But keep this in mind: the further back in time we go, the less powerful the increased cash flow.   Our report will help accelerate your depreciation as if you had accelerated the depreciation from the year you purchased or constructed the residence.  However, the value of having your cash in hand years ago erodes somewhat each year you delay.  Therefore, we recommend going back no more than eight years to make sure you are still able to glean a good benefit from our results. 

No Amending Required

You do not need to amend any prior tax returns to fix the depreciation filed in the prior years. You also won’t miss out on the difference in depreciation deductions in those prior years just as if you had accelerated your depreciation from year one.

Talk about having your cake and eating it too!

How Is This Possible?

You may be asking yourself this question. The way to catch-up previously filed depreciation differences is by attaching Form 3115 to your next timely (including extensions) filed tax return. There is a prior period adjustment amount calculated on this form that you will list as an “other deduction” on your return.  This adjustment pulls the prior difference forward into your current tax year. We will generate this form for you with the report. 

Be ready with your most recently filed deprecation schedule from your tax return to input key information which allows us to calculate that form for you. Check out our blog “Incorporating Form 3115 Into Your Tax Return” for more information on this topic.