Form 3115: How to Claim Missed Depreciation on Existing Properties

By AE Tax Advisors Team • September 6, 2026 • 8 min read

If you own rental property or commercial real estate that was placed in service years ago, there is a good chance you have been leaving depreciation deductions on the table. Many property owners either depreciated their buildings using only the standard straight-line method, or missed depreciation deductions entirely in prior years. The good news is that the IRS provides a way to recover all of that missed depreciation in a single tax year, without filing amended returns. The mechanism for doing so is Form 3115, Application for Change in Accounting Method.

What Is Form 3115?

Form 3115 is the IRS form used to request a change in accounting method. In the context of depreciation, it allows property owners to switch from an incorrect or suboptimal depreciation method to the correct one. The most common use case for real estate investors is switching from straight-line depreciation over 27.5 or 39 years to accelerated depreciation under a cost segregation study. This change reclassifies building components into shorter recovery periods (5-year, 7-year, and 15-year property) under the Modified Accelerated Cost Recovery System (MACRS) as defined in IRC Section 168.

The critical advantage of Form 3115 is the Section 481(a) adjustment. Rather than going back and amending each prior year return individually, Section 481(a) of the Internal Revenue Code allows you to compute the cumulative difference between what you deducted and what you should have deducted, and then claim that entire amount as a single adjustment on your current year tax return.

Why Form 3115 Matters for Property Owners

Many investors purchase properties and simply accept the default depreciation schedule their CPA assigns. A residential rental property gets depreciated over 27.5 years under IRC Section 168(c). A commercial property gets 39 years. The entire building cost goes onto one depreciation schedule, and the owner claims small, uniform deductions each year.

However, a cost segregation study can reclassify 20% to 40% or more of the building's cost basis into shorter-lived asset categories. Cabinets, appliances, flooring, plumbing fixtures, electrical outlets, landscaping, paving, and similar components qualify for 5-year, 7-year, or 15-year recovery periods. With the One Big Beautiful Bill Act (OBBBA) now making 100% bonus depreciation permanent under IRC Section 168(k), these reclassified components can be fully depreciated in a single year.

For properties already in service, Form 3115 is the bridge that connects a new cost segregation study to the tax savings. Without it, the reclassified depreciation would only apply going forward. With it, you capture all the depreciation you should have been claiming from the day the property was placed in service.

How the Section 481(a) Adjustment Works

The Section 481(a) adjustment is straightforward in concept. Your tax professional calculates two numbers:

1. Depreciation actually claimed on prior year returns using the old method.
2. Depreciation that should have been claimed if the cost segregation study had been performed at the time the property was placed in service.

The difference between these two figures is your 481(a) adjustment. When the amount you should have claimed exceeds the amount you actually claimed (a negative 481(a) adjustment), you deduct the entire difference in the current tax year. There is no requirement to spread it over multiple years, and no need to amend a single prior year return.

Real Dollar Example: Five-Year Catch-Up

Consider a property purchased five years ago for $800,000 (with $650,000 allocated to the building and $150,000 to land). Under standard straight-line depreciation at 27.5 years, the owner claimed approximately $118,182 in total depreciation over five years ($23,636 per year).

A cost segregation study reclassifies $227,500 (35% of the building value) into shorter-lived asset categories. With 100% bonus depreciation now permanent under OBBBA, those reclassified components would have been fully deducted in Year 1. Combined with the remaining straight-line depreciation on the structural components, the total depreciation that should have been claimed over the same five-year period is approximately $304,318.

The Section 481(a) adjustment equals $304,318 minus $118,182, producing a catch-up deduction of $186,136 in the current tax year. At a combined federal and state marginal rate of 37%, that translates to roughly $68,870 in tax savings, all captured in a single filing. Use our cost segregation calculator to estimate your own potential savings.

Step-by-Step Process for Filing Form 3115

Step 1: Conduct a Cost Segregation Study

A qualified engineering-based cost segregation study must be completed on the existing property. This study identifies and reclassifies building components into their appropriate MACRS recovery periods under IRC Section 168. The study serves as the documentation supporting the change in depreciation method.

Step 2: Calculate the 481(a) Adjustment

Your tax advisor computes the difference between the total depreciation claimed from the placed-in-service date through the end of the prior tax year and the total depreciation that should have been claimed under the new method for the same period. This calculation must account for all applicable conventions, recovery periods, and bonus depreciation rates in effect for each tax year.

Step 3: File Form 3115 with the Current Year Return

Form 3115 is attached to your timely filed federal income tax return (including extensions) for the year of change. A copy must also be sent to the IRS National Office in Washington, D.C. Under Rev. Proc. 2015-13, this change qualifies for automatic consent, meaning you do not need advance IRS approval. You simply file the form and claim the adjustment.

Step 4: Claim the Cumulative Adjustment

The full negative 481(a) adjustment is reported on your current year return. If the adjustment is negative (you under-claimed depreciation), you deduct the entire amount in one year. Going forward, depreciation continues under the new, correct method established by the cost segregation study.

Common Situations Where Form 3115 Applies

Form 3115 is not limited to one scenario. It applies across a range of situations that real estate investors commonly face:

• Properties placed in service years ago without a cost segregation study. This is the most common case. The owner used straight-line depreciation and never reclassified building components.
• Properties with incorrect depreciation methods. For example, a short-term rental property depreciated over 27.5 years (residential) when it should have been classified as 39-year nonresidential property, or vice versa.
• Properties where depreciation was never claimed at all. Some owners, particularly those who self-prepared returns, simply missed the depreciation deduction in prior years. Form 3115 recovers those missed deductions.
• Properties where land improvements were not separated from the building. Items like parking lots, fencing, sidewalks, and landscaping qualify for 15-year recovery but were often lumped into the building's 27.5 or 39-year schedule.

The Advantage Over Amended Returns

Filing amended returns (Form 1040-X or 1120-X) to correct depreciation has significant limitations. Amended returns are generally limited to the three-year lookback period under IRC Section 6511. If your property was placed in service six years ago, you could only amend the last three years and would lose the deductions from years four through six. Form 3115 has no such limitation. It captures the full cumulative adjustment regardless of how many years have passed.

Additionally, amended returns must be filed separately for each prior year, creating more paperwork and longer processing times. Form 3115 consolidates everything into a single filing with the current year return.

OBBBA and Permanent Bonus Depreciation

The One Big Beautiful Bill Act (OBBBA) made 100% bonus depreciation permanent under IRC Section 168(k), reversing the phasedown that had been scheduled under the Tax Cuts and Jobs Act. This is significant for Form 3115 filings because it means property owners who reclassify assets through a cost segregation study can apply full bonus depreciation to those reclassified components. For existing properties, this maximizes the 481(a) catch-up deduction because the "should have been claimed" column now includes 100% first-year expensing on all qualifying components. Learn more about how bonus depreciation applies to rental property.

Timing Considerations

There are important deadlines to keep in mind when planning a Form 3115 filing:

• Form 3115 must be filed with a timely filed return. This includes extensions. If you file your return late (after the extension deadline), you cannot include Form 3115 for that tax year.
• The duplicate copy must be mailed to the IRS National Office. This is a separate requirement from attaching the form to your return.
• Only one Form 3115 per property per year. You cannot file multiple changes for the same asset in the same tax year.
• Planning should begin early. The cost segregation study, 481(a) calculation, and Form 3115 preparation take time. Starting the process well before your filing deadline ensures nothing is rushed.

Automatic Consent Under Rev. Proc. 2015-13

Under Rev. Proc. 2015-13 (as updated by subsequent revenue procedures), a change in depreciation method for property already placed in service qualifies as an automatic change in accounting method. This means no user fee is required, no advance ruling from the IRS is needed, and the change is made simply by filing Form 3115 with the return. The IRS designated this as a Designated Change Number (DCN) 7, making it one of the most accessible tax corrections available to property owners.

Frequently Asked Questions

Related Reading

• Cost Segregation Study Services
• Cost Segregation Calculator
• Bonus Depreciation for Rental Property
• Is Cost Segregation Worth It?
• How Much Does a Cost Segregation Study Cost?
• Real Estate Tax Planning