The problem: missed depreciation
Many landlords fail to claim depreciation correctly — or at all — in early years. You generally can't amend returns older than three years to fix it. And skipping the deduction doesn't help at sale: the IRS taxes recapture on depreciation "allowed or allowable," meaning you still owe it on what you could have taken.
The fix: Form 3115
IRS Form 3115 (Application for Change in Accounting Method) lets you make an automatic accounting method change to correct improper depreciation. The cumulative amount you should have taken but didn't becomes a Section 481(a) adjustment — a single deduction taken all at once in the year you file.
How to use it
Your tax professional files Form 3115 with your current-year return and sends a copy to the IRS national office. You calculate the total depreciation missed from the placed-in-service date through the correction year and claim the full shortfall as a current-year deduction. The adjustment is ordinary — it offsets ordinary income just as the annual deductions would have.
Frequently asked questions
Can I amend old returns to catch up depreciation?
Only for the last three years. For older missed depreciation, Form 3115 is the proper remedy.
Does a Form 3115 catch-up reduce future recapture?
No — recapture at sale is based on depreciation allowed or allowable. The 3115 simply lets you take the deductions you were entitled to.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.