Form 3115 and §481(a) catch-up
Cost segregation on a property already in service for years is a method change, not an amended return. The mechanism is Form 3115 with DCN 7 under Rev. Proc. 2024-23, which produces a §481(a) catch-up deducted entirely in the year of change.
Do I need to file Form 3115 to do cost segregation on a property I already own?
Yes, if you've already filed two or more returns using straight-line depreciation. Cost segregation on a previously-placed-in-service property is a change in method of accounting under IRC §446(e) and Treas. Reg. §1.446-1(e), not an amended return. The mechanism is Form 3115 ("Application for Change in Accounting Method") filed under the automatic-consent procedure in Rev. Proc. 2024-23, designated change number (DCN) 7. The §481(a) adjustment captures all missed accelerated depreciation — including the bonus rate that was in effect in the placed-in-service year — in the year of change.
Run a feasibility estimate at /cost-seg/?lookback=true.
What is a §481(a) adjustment in cost segregation?
A §481(a) adjustment is the cumulative difference between depreciation actually claimed (straight-line over 27.5 or 39 years) and depreciation that would have been claimed under the new method (cost segregation with the year-of-placement bonus rate plus accelerated MACRS), measured through the start of the year of change. For a positive adjustment (more depreciation under the new method, which is the cost-seg case), the entire amount is deducted in the year of change in a single line.
What is DCN 7 and when does it apply?
DCN 7 is the designated change number in Rev. Proc. 2024-23 (Appendix §6.01) for a change in depreciation method to the proper MACRS class life — the standard cost-seg look-back. It is an automatic-consent change, meaning no IRS user fee and no advance approval required: file Form 3115 with your timely-filed return for the year of change and a duplicate with the IRS Ogden service center. DCN 7 covers most look-back cost segs on previously-placed-in-service property.
Can I just amend my prior return instead of filing Form 3115?
No. Treas. Reg. §1.446-1(e)(2)(ii)(d)(2) explicitly classifies a depreciation method change (other than a permissible-to-permissible election change for assets under one year old) as a change in method of accounting requiring Form 3115. Amending two or more prior returns to switch from straight-line to MACRS-class life is not an option — those returns reflect a method, and changing a method is not the same as fixing a math error. The §481(a) adjustment exists precisely to reconcile prior-period differences in a single current-year line without amending.
When is Form 3115 due?
Two filings, both tied to the year of change. The original Form 3115 attaches to your timely-filed federal income tax return (including extensions) for the year of change. A duplicate copy is mailed to the IRS Ogden service center no earlier than the first day of the year of change and no later than when the original is filed with the return. Miss the duplicate-copy deadline and the automatic-consent procedure can be invalidated.
Will my CPA file Form 3115 or do I file it myself?
Your CPA prepares and files Form 3115. The form is signature-required, technically complex (Schedules A-E plus the §481(a) computation), and ties directly to the depreciation schedule on the return. A cost segregation engineering report is the supporting document for the asset reclassifications, but the Form 3115 itself is a tax-return filing under §446(e) and is the responsibility of the return preparer. TaxProtestTx is a feasibility-screening tool — it does not prepare or file Form 3115.
How is the catch-up amount calculated?
The §481(a) adjustment equals: (depreciation that should have been taken under cost-seg from placed-in-service date through the start of the year of change) minus (depreciation actually claimed under the prior method over that same period). The "should have been" side includes the bonus depreciation rate in effect in the placed-in-service year (e.g., 100% for 2017–2022, 80% for 2023, 60% for 2024, 100% post-Jan 19 2025) applied to the reclassified 5-, 7-, and 15-year basis, plus accelerated MACRS on the non-bonus portion.
Run a feasibility estimate at /cost-seg/?lookback=true.
What's the difference between a current-year cost-seg study and a look-back?
A current-year study applies cost segregation in the year a property is placed in service — no Form 3115, no §481(a). The first year's return reflects the new MACRS classifications directly. A look-back study applies cost segregation to a property already in service in a prior year (typically 2-15 years back); it requires Form 3115 with DCN 7 and produces a §481(a) catch-up deducted entirely in the year of change. Look-backs are time-value-of-money efficient because the entire missed depreciation comes in one year.