Form 3115 and the Cost Segregation Catch Up
Own a building placed in service in an earlier year? A study can still be prepared. IRS procedures generally let you catch up the depreciation you could have taken through a Form 3115 automatic method change filed with your next return, instead of amending prior returns. This page prints the rules from their sources, shows the adjustment on an invented building computed by our engine, and leaves the filing to your CPA.
Why Not an Amended Return
Once a depreciation method has been adopted, the route is a change in method of accounting; the two facts below say when that is.
- Changing the depreciation method, period of recovery or convention of an asset for which a method has been adopted is a change in method of accounting. It therefore generally requires Form 3115 rather than an amended return. Before a method is adopted, an amended return can correct the depreciation. Source: Treas. Reg. section 1.446-1(e)(2)(ii)(d)(2)(i); IRS Publication 946 (2025), chapter 1
- Generally, a taxpayer adopts a depreciation method by using a permissible method on the first return or by using the same impermissible method on two or more consecutively filed returns. Once a method is adopted, the IRS guide says it cannot be changed by amended return unless specific guidance allows an exemption. Source: IRS Publication 946 (2025), chapter 1, Adoption of accounting method defined; IRS Publication 5653 (Rev. 2-2025), chapter 6, part B.6, paragraph (2)
The Automatic Change
The change number, the current list and how the form is filed, each from its source.
- The automatic change from an impermissible to a permissible method of accounting for depreciation is in section 6.01 of Rev. Proc. 2025-23, and its designated automatic accounting method change number is 7. It applies to property the taxpayer owns at the beginning of the year of change and for which the impermissible method was used in at least two tax years immediately before the year of change, with a special rule for property placed in service in the immediately preceding year. Section 6.01 also lists property it does not cover, and property disposed of before the year of change is handled in section 6.07. Source: Rev. Proc. 2025-23, 2025-24 I.R.B. 1476, sections 6.01(1), 6.01(9) and 6.07
- As of September 2026 the current IRS list of automatic accounting method changes is Rev. Proc. 2025-23. It is effective for a Form 3115 filed on or after June 9, 2025 for a year of change ending on or after October 31, 2024. Later revenue procedures (2025-28 and 2026-32) modified sections 7 and 19 but did not replace it. Source: Rev. Proc. 2026-32, background paragraph on current guidance; Rev. Proc. 2025-23, EFFECTIVE DATE section .01
- For an automatic change the original Form 3115 is attached to the timely filed federal income tax return (including extensions) for the year of change, and a signed copy is filed with the IRS no later than the date the original is filed. The IRS does not send acknowledgements for automatic change requests. The current Form 3115 instructions are the December 2022 revision. Source: Instructions for Form 3115 (Rev. 12/2022), When and Where To File; Rev. Proc. 2015-13 section 6.03(1)
The Section 481(a) Adjustment
What the adjustment is and when it is taken, from the revenue procedure.
- A negative section 481(a) adjustment, which lowers taxable income, is taken in full in the year of change. A positive adjustment is generally spread over four tax years. The adjustment for a depreciation change equals the difference between depreciation actually taken and depreciation allowable for all years before the year of change. Source: Rev. Proc. 2015-13, 2015-5 I.R.B. 419, section 7.03(1); Rev. Proc. 2025-23 section 6.01(5); IRS Publication 946 (2025), chapter 1
| Years caught up | 5 |
|---|---|
| Depreciation allowable under the new method | $185,233 |
| Depreciation under the prior method, as modeled | $82,676 |
| Section 481(a) adjustment | $(102,557)Negative: deducted in full in the year of change. |
| Route | Claimed through Form 3115, an automatic accounting method change (DCN 7), attached to the return for the year of change. Changing the depreciation method, recovery period or convention of property already in service generally requires Form 3115 rather than amended returns. Our study supplies the numbers, and your CPA decides how the catch up reaches the return. |
| Bonus rate the engine applied | 100% |
Illustrative catch up computed by our engine for an invented four family at 31 Fixture Road, Testville, ZZ 00000: purchase price $600,000, placed in service July 2021, year of change 2026 chosen for this example, at the Middle of the Road position with the engine's default land share. The prior method is modeled as straight line on the whole building; a study uses the figures from your filed returns instead.
The ZZ 00000 marker means invented: these figures are an illustration for the inputs shown, not a result for any real property.
What the Study Gives Your CPA
The study prints the asset schedule, the depreciation under the new method for every year since the building was placed in service, and the Form 3115 attachment when you enter the depreciation claimed on your filed returns and choose the year of change. The year of change is yours to choose; the study never assumes it.
Questions people ask
Do I have to amend prior returns?
- Generally no. The facts in the first two sections say when the change is made on Form 3115 rather than an amended return and how the form reaches the return for the year of change. Your CPA confirms the route and files the form.
Can I use the whole catch up in one year?
- How much of the catch up deduction you can use in the year depends on your tax situation, including the passive activity rules, and your CPA decides.
Which year is the year of change?
- The year your CPA chooses to file the change for. Our study asks you for it and prints the year it used.
The rules on this page were checked against their sources on October 1, 2026.
Ready when you are.
The wizard asks the questions for your property and routes it to the right lane.