Form 3115 for Rental Property Depreciation: Catch-Up Guide (2026)
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Quick Answer
Form 3115 is how a rental owner takes depreciation that was never claimed, or that a late cost segregation study now supports, in one year without amending old returns: the change is automatic change number 7 in Rev. Proc. 2025-23, and the whole catch-up is a negative Section 481(a) adjustment taken in the year of change. The IRS requires that the impermissible method was used in at least two taxable years before the year of change; for property placed in service in the year just before, you may either file Form 3115 or amend that year's return. In our $400,000 look-back example (a July 2021 apartment building, 100% special allowance), the catch-up is $335,156 in 2026. For a $300,000 house on which nothing was ever claimed since March 2019, it is $74,085 (our arithmetic). Sale of the property in the same year uses a different number, 107. As of October 22, 2026, the IRS lists the Form 3115 instructions as Rev. December 2022 and Rev. Proc. 2025-23 as the current list of automatic changes.
Key Takeaways
- Number 7 covers a change from an impermissible to a permissible method of depreciation on property you still own. Rev. Proc. 2025-23, section 6.01, requires that you used the impermissible method in at least two taxable years immediately before the year of change; not claiming depreciation at all counts, and so does depreciating a building part over 27.5 years that a study shows is 5-, 7- or 15-year property.
- The catch-up is the depreciation you could have claimed minus what you did claim, for open and closed years (section 6.01(5)). A negative adjustment, a deduction, is taken in one year; a positive one is spread over four, and a positive one under $50,000 can be elected into one year (Form 3115 instructions).
- A building placed in service in the year before the year of change is a special case: you may file Form 3115 or amend that year's return, as long as you amend before you file the next year's return (section 6.01(1)(b)).
- Skipping the form does not avoid the tax: basis falls by the depreciation allowed or allowable, not less than the amount allowable (26 U.S.C. 1016(a)(2); Publication 946). Filing turns the unclaimed amount into a deduction now instead of leaving it as an adjustment you only meet at a sale.
- If the property was sold, the number is 107, the year of change is the year of the sale, and the whole adjustment is taken that year; an amended return route exists (section 6.07).
- Number 7 does not cover late or revoked elections, a change in the placed-in-service date, or property on which you claimed a federal tax credit such as the rehabilitation credit; no user fee applies to an automatic change, and the IRS sends no acknowledgement.
CSV · 67 rows
Form 3115 for rental depreciation: the automatic change rules in Rev. Proc. 2025-23, the filing steps, and four catch-up examples
67 rows: the change numbers and eligibility rules for depreciation in Rev. Proc. 2025-23, the Form 3115 filing and Section 481(a) timing rules, the Publication 946 and Code rules behind them, the Table A-6 percentages used, and four worked catch-up examples (our arithmetic).
What the form does, and what it does not
Treasury's regulation says a change in the depreciation method, period of recovery, or convention of an asset is a change in method of accounting, and so is a change from not claiming to claiming the additional first year depreciation deduction (26 CFR 1.446-1(e)(2)(ii)(d)(2)). That is why you cannot just amend your returns to fix a repeated mistake: Publication 946 lists an impermissible method used on “two or more consecutively filed tax returns” among the changes that need Form 3115. A one-off math or posting error is different and can be fixed on an amended return.
Section 481(a) of the Code is what makes the form work. It requires the adjustments “to prevent amounts from being duplicated or omitted” when you switch methods. For depreciation, Rev. Proc. 2025-23 spells out the arithmetic: the adjustment equals the difference between the depreciation taken into account under your present method and the depreciation allowable under the proposed method, for open and closed years. It can be negative (a deduction) or positive.
The IRS lists many numbered automatic changes (DCNs). The ones a rental owner is likely to meet:
| Change number | Rev. Proc. 2025-23 section | What it covers | Typical rental situation |
|---|---|---|---|
| 7 | 6.01 | Impermissible to permissible depreciation, property still owned | Depreciation never claimed; a cost segregation study on a building you already own |
| 107 | 6.07 | Same change for property already disposed of | You sold a rental and only then found the depreciation was never claimed |
| 244 | 6.18 | Qualified improvement property placed in service after December 31, 2017 | Interior improvements depreciated under the wrong method |
| 8 | 6.02 | Permissible to permissible method (section 167 property) | Not a catch-up change; the Form 3115 instructions list it for reduced filing |
| 245 | 6.19 | Certain late elections or revocations under section 168 | Late election needs a letter ruling instead of number 7 (section 6.01(1)(c)(vi)) |
Who qualifies for number 7, and who does not
The text of section 6.01 sets the tests. The change applies to property “for which the taxpayer used the impermissible method of accounting in at least two taxable years immediately preceding the year of change”, which you must still own at the start of the year of change. Four exclusions matter for real estate:
- Late or revoked elections. If you want to make a late election or revoke a timely valid one under sections 167, 168 or 179 (including electing out of the special allowance), the revenue procedure says you may “request consent to revoke or make the election by submitting a request for a letter ruling.” Number 7 does not do it.
- A new placed-in-service date. A change in the placed-in-service date is not a number 7 change and is corrected by adjustments in the applicable taxable year.
- Property on which you claimed a tax credit, such as the rehabilitation credit, unless the change does not alter the credit (section 6.01(1)(c)(xvi)).
- Section 1250 property moved into a class that does not include it. Number 7 will not make a building a 5-year asset class that excludes real property, such as asset class 57.0; and if a study reclassifies part of a building to Section 1245 property, section 6.01(3)(b)(vii) requires a statement of the facts and law and a representation that each item reclassified from, for example, residential rental property is Section 1245 property for depreciation purposes. Your preparer needs the study for that statement.
If you are reading this because of a study, our guide to cost segregation covers what the IRS audit guide expects of the study itself, and our page on bonus depreciation for real estate investors covers the rate by acquisition date.
Four catch-ups, with the arithmetic
All four are illustrations built on Publication 946 Table A-6 (residential rental, mid-month): 2.879% in the first year for March, 1.667% for July, and 3.636% in each of years 2 to 9. The inputs are our assumptions, not data about any property; a study or your own records replace them.
A. A study in 2026 on an apartment building placed in service in July 2021. Price $2,000,000, land $400,000 (assumed 20%), building $1,600,000. Say a study finds $400,000 of 5-, 7- and 15-year components. Publication 946 (2021) says property acquired after September 27, 2017 and placed in service before January 1, 2023 takes a 100% special allowance, so all $400,000 was allowable in 2021. On the return you filed, that $400,000 was in the 27.5-year building: $6,668 in 2021 (1.667%) and $58,176 for 2022 to 2025 (four years at 3.636%), $64,844 in all.
| Line | Amount (our arithmetic) |
|---|---|
| Allowable on the $400,000 component (100% in 2021) | $400,000 |
| Taken through 2025 as 27.5-year building | $64,844 |
| Section 481(a) adjustment, year of change 2026 | $335,156 negative |
| 2026 regular depreciation on the remaining $1,200,000 building | $43,632 |
| Tax effect at a 24% marginal rate / at 37% | $80,437 / $124,008 |
The tax effect ignores the passive loss limits, which can suspend a large rental deduction; see the section 469 discussion in our cost segregation guide.
B. A building placed in service in March 2025, studied in 2026. The same $400,000 component, acquired after January 19, 2025, qualifies for the 100% allowance under 26 U.S.C. 168(k) as amended by P.L. 119-21. The 2025 return took $11,516 (2.879%) on it. Because the property was placed in service in the year immediately preceding the year of change (2026), section 6.01(1)(b) offers two routes: Form 3115 with a $388,484 negative adjustment in 2026, or an amended 2025 return, “prior to the date the taxpayer files its federal income tax return for the taxable year succeeding the placed-in-service year.” The amended return puts the deduction in 2025 instead of 2026.
C. A house on which depreciation was never claimed. Building basis $300,000, placed in service March 2019, nothing claimed for 2019 to 2025. Allowable depreciation is 2.879% for 2019 ($8,637) plus six years of 3.636% ($65,448), or $74,085. Publication 946 says that if no depreciation was deducted, the adjustment is the total depreciation allowable before the year of change. It lands in 2026 as a deduction, alongside the normal 2026 depreciation of $10,908. At a 24% marginal rate it is worth $17,780 (assumption).
D. The same house, sold in July 2026. Number 107 applies, and the year of change is the year of disposal. The allowable amount through the sale is $74,085 plus 3.636% × 6.5/12 for the sale year ($5,909), or $79,994. The adjusted basis in the sale was already reduced by the depreciation allowable (26 U.S.C. 1016(a)(2)); the filing adds the deduction that was never taken. Our page on depreciation recapture shows how that basis reduction feeds the gain, and the depreciation calculator gives the schedule for your own dates.
Filing mechanics
For an automatic change, the instructions give two steps:
- Attach the original Form 3115 to “the filer's timely filed (including extensions) federal income tax return for the year of change.”
- Send a signed duplicate to the IRS National Office (Ogden, Utah, M/S 6111 on the address chart) no earlier than the first day of the year of change and no later than the date the original is filed with the return.
The IRS does not send acknowledgements, and no user fee is required. If several assets change in the same year, section 6.01(8) says to file a single Form 3115 with a single net adjustment (or one negative and one positive). A qualified small taxpayer, average annual gross receipts of $10,000,000 or less for the three preceding years, completes only a shortened set of lines (section 6.01(4)). Whether you qualify is a question for your preparer.
Rev. Proc. 2025-23 is effective for Forms 3115 filed on or after June 9, 2025, for a year of change ending on or after October 31, 2024. Check the IRS Form 3115 page before filing: on October 22, 2026 it showed no recent developments and listed Rev. Proc. 2025-23 and Rev. Proc. 2026-1 beside the form.
What a reader can do with this
- Pull your depreciation history first. Form 4562 and Schedule E for each year since the property was placed in service show what was taken; the gap to the table amount is the adjustment.
- Count the years. Two or more returns with the same wrong method point to number 7; property placed in service last year has the amend-or-file choice.
- Decide which year is the year of change. The form is filed with the return for that year, so a calendar-year owner whose 2025 return is done is usually looking at 2026.
- Ask before a sale. If a sale is coming, number 107 or number 7 changes which return carries the deduction; ask a tax professional before signing the contract.
- Do not attach a study to Form 3115 on faith. If part of a building is moving to 5-, 7- or 15-year property, the form needs the reclassification statement in section 6.01(3)(b)(vii).
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FAQ
Sources, read and saved on October 22, 2026: IRS Rev. Proc. 2025-23 (2025-24 I.R.B. 1476), sections 6.01, 6.07, 6.18, 6.19 and the effective date; IRS Instructions for Form 3115 (Rev. December 2022) and the IRS About Form 3115 page; IRS Publication 946 (2025) and (2021); 26 U.S.C. 168, 481 and 1016 and 26 CFR 1.446-1 on Cornell's Legal Information Institute. The four examples, their assumed inputs and every sum are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.
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