[khw]

At our personal residence, we have rented out a detached studio in our back yard (in the USA) for over a decade. When I first was contemplating this, I asked an accountant about depreciation. He told me not to depreciate, as it would be financially not to our advantage when we sold. I have declared the income each year, but have not depreciated it at all.

This year, as I was preparing my taxes, I noticed an IRS publication saying essentially that if you can depreciate, you must. Am I misreading this, or was the accountant wrong, or did the policy change in the meantime? If the accountant was wrong, it looks like I should have depreciated from when we first started, and I should file amended returns for the past three years, as if I had been depreciating all those years, forfeiting the deduction from earlier years. Is this correct? If the policy changed in the meantime, should I start depreciating at the point when the policy changed?

Thanks in advance

[AtlantaTaxExpert]

The accountant was wrong. If you can depreciate, you do NOT have to depreciate, but when you calculate the capital gains, it must be calculated as if you DID depreciate. It is a COMMON mistake made by owners of rental property, though I AM surprised that the accountant did not know this.

So, yes, amend 2004, 2005 and 2006 and just forget the lost depreciation. Live and learn!