What If I Forgot to Take Depreciation in a Prior Year?

Filing your federal income taxes is not only a stressful exercise, but it can be complicated depending on your unique situation, such as ownership interests, business interests, investments and various sources of income. In the event that you overlook a particular deduction, such as depreciation, the Internal Revenue Service allows you to fix certain errors, such as claiming a missed deduction or credit by filing an amended tax return.

Although you are not required to amend your return for simple math errors or missing forms, there are certain instances in which the IRS requires you to amend your tax return -- for instance, if you incorrectly report your filing status (e.g., married, head of household), the number of your dependents, your total income, or deductions or credits. If any of these situations apply to you, you should amend your return immediately.

If you forgot to take depreciation in a prior tax year, you must amend your tax return. Depreciation must be claimed in the year you are entitled to take it under federal law or you lose it. In general, you are only allowed to file an amended return to correct your depreciation amount if any of the following applies: you claimed the incorrect amount because of a mathematical error made in any year; you claimed the incorrect amount because of a posting error made in any year; you have not adopted a method of accounting for property placed in service by you in tax years ending after Dec. 29, 2003; or you claimed the incorrect amount on property placed in service by you in tax years prior to Dec. 30, 2003. If you forgot to take depreciation in a prior year, you would fall within the third category of individuals who would be able to file an amended return.

To amend your prior tax return, you must complete Form 1040-X and include all of the information from your prior return with the new information regarding the depreciation information on Form 4562, Depreciation and Amortization. You must also identify the year of the return that you are amending by writing the tax year at the top of the form. You may only file your amended return on paper and not electronically and you may only amend one year per form. Therefore, if you need to take depreciation for multiple years, you will need to amend as many returns.

Generally, the IRS allows you to amend your tax return for only the prior three tax years. To determine the deadline for your tax amendment, you must use the later of the following dates: the date you filed your initial return or within two years from the date you paid taxes, if any.