Illustrative planning example
The figures on this page are hypothetical teaching inputs, not a verified client result or prediction of savings. Depreciation, deductions, income offsets, estimated tax benefits, and realized refunds are different measures. Review the assumptions and limitations before applying the example to your property.
Missed Depreciation Correction Worked Example
Practical guidance for business owners and residential rental investors.
Hypothetical planning example
This page is an educational worked example. It does not represent a verified AE client outcome.
Worked example: bridge prior depreciation before filing
Assume an eligible hypothetical method change has $75,000 of cumulative proper depreciation and $20,000 previously deducted through the beginning of the year of change. The $55,000 difference illustrates the reconciliation behind a potential catch-up adjustment. It is not proof that this procedure applies to a particular owner.
Illustrative decision
The preparer still needs to confirm the current automatic-change rules, applicable form, statement and filing requirements. Current-year depreciation is calculated separately. Even a valid negative adjustment may not produce an immediate tax reduction if the resulting loss is limited. This is not a confirmed refund or AE client outcome.
Do not substitute current percentages for historical rules
Recalculate the relevant years with the appropriate acquisition dates, service dates, methods, conventions and elections. Confirm which correction procedure applies under current guidance. A report produced today does not change the dates on which the original assets were acquired. Keep the historical bridge and current-year depreciation separate so the adjustment does not duplicate a deduction.
What this example does and does not establish
The facts and numbers on this page are hypothetical teaching inputs. They are not a verified client result, a filed-return outcome or a prediction of typical savings. An actual engagement requires source records, applicable-year analysis and a final return reconciliation. No individual professional review is claimed. Cost segregation and other project work are separately scoped from advisory.
Records and decisions to prepare
- Identify the adopted method and correction eligibility
- Recompute historical depreciation
- Reconcile the adjustment without duplicating current depreciation
- Complete required filing steps
- Apply owner-level limits and retain the workpapers
Primary references for this decision:
- IRS Publication 946: depreciation methods and eligibility
- IRS Publication 925: passive activity and at-risk rules
Examples illustrate decisions, not guaranteed outcomes. Apply the rules for the relevant tax year and review the underlying facts before filing.
Worked examples and implementation · Browse owner tax decisions · Editorial standards
Talk Through Your Situation
Every situation turns on its own facts. Schedule a discovery call and we will walk through what applies to you, what it is worth, and what it would take to put it in place.
Evidence needed before applying this strategy
A comparable engagement should reconcile the original basis, land, service dates, prior depreciation, study methodology, applicable elections, activity classification, loss limitations, and filed-return implementation. An estimated tax benefit should be distinguished from a filed deduction and from an actual refund or reduction in tax paid.
For a portfolio, document the activity grouping and participation analysis instead of automatically combining hours across every property. For a lookback, choose the accounting-method or amendment procedure before promising recovery.
- IRS cost segregation audit technique guide
- IRS Publication 946: depreciation and bonus eligibility
- IRS Publication 925: passive activity and at-risk limitations
- IRS Publication 544: dispositions and recapture
Review study scope | Screen a rental-property scenario | Choose the correction method | Read our evidence standards