Buildings placed in service years ago and depreciated entirely over 27.5 or 39 years.
Accounting method changes
Catch up missed
depreciation.
When a property was depreciated under the wrong method, life or classification for two or more years, the fix is not an amended return. It is a change in accounting method, with the entire catch-up recognized in one year.
How it works.
Depreciation that was understated in prior years is not lost. Once an incorrect method has been used on two consecutive returns it becomes an established method, and the taxpayer corrects it by filing Form 3115. The cumulative difference between what was deducted and what should have been deducted is the §481(a) adjustment.
A negative adjustment (you deducted too little) is generally taken in full in the year of change. That is what makes a “look-back” cost segregation study valuable on a property you bought years ago: the study reclassifies components, and the method change brings the missed depreciation forward.
Most depreciation changes qualify for automatic consent, so no user fee or advance IRS approval is required. Timing still matters. The form is filed with a timely return for the year of change, and the computations must tie to your fixed asset records.
Who it fits
Owners who never had a study, or had one but never implemented it.
Land improvements, qualified improvement property or equipment carried on the wrong recovery period.
Businesses leaving §263A or adopting the tangible property regulations.
What the engagement looks like.
- 01Records review
Pull the depreciation schedules, prior returns and any earlier studies for the asset.
- 02Engineering or cost analysis
Establish the correct classification and recovery periods with documented support.
- 03§481(a) computation
Calculate the cumulative adjustment, year by year, reconciled to the fixed asset ledger.
- 04Form 3115 package
Deliver the statements and workpapers your CPA attaches to the return and sends to the IRS.
Innovate Real Estate Tax Strategies does not provide legal advice. Final tax positions should be evaluated with your independent tax advisor.
Common questions
Before you start.
Every engagement begins with a free review of your facts. These are the questions we hear most.
Is there a deadline?
The form is filed with the return for the year of change, including extensions. Planning before year end gives your CPA the most options.
Can I do this for a property I plan to sell?
Often, but the recapture and timing consequences should be modeled first. We coordinate that review with your advisor.
What does the IRS receive?
A copy of Form 3115 is sent to the IRS national office and the original is attached to the return. No separate approval letter is needed for automatic changes.
Reviewed October 23, 2026. References: IRS: Form 3115 instructions, IRS Publication 946: How to depreciate property. Educational overview; individual facts determine treatment.
Start with the property