Form 3115 Walk-Through With a Real Example

Line-by-line Form 3115 worked example for a 2022 rental look-back, including DCN 7, the §481(a) adjustment, and the duplicate-copy filing path.

Form 3115 Walk-Through With a Real Example

What you'll learn. A field-by-field walk through Form 3115 (Application for Change in Accounting Method) for a property owner who bought a long-term rental in March 2022, never filed a cost segregation study, and is now filing a 2026 look-back via DCN 7 (Designated Change Number 7) under Rev. Proc. 2024-23. This complements the hero §481(a) walkthrough by showing the actual line entries the preparer makes — not just the concept.

The fact pattern

• Property: single-family long-term rental in Magnolia, TX
• Acquired: March 14, 2022, for $480,000 (land $80,000, building $400,000)
• Filed 27.5-year straight-line on Schedule E for tax years 2022, 2023, 2024, and 2025
• Hired an engineering firm in early 2026; study reclassifies $52,000 (5-year) and $34,000 (15-year) — totals $86,000 of accelerable basis
• Filing on the 2026 Form 1040 with Form 3115 attached

The §481(a) adjustment captures the difference between depreciation actually claimed (straight-line 27.5-year on the full $400,000) and depreciation that should have been claimed had the study been in place from day one.

Line 1(a) — Designated Change Number

Enter DCN 7 ("Depreciation or amortization — change from impermissible to permissible method"). Rev. Proc. 2024-23 §6.01 lists DCN 7 as the automatic-consent procedure for cost-segregation reclassifications, which means no user fee and no IRS pre-approval. The §481(a) adjustment is taken in a single year (the year of change) when negative — and a negative §481(a) here means the taxpayer is owed deductions, which is the favorable direction.

Part I — Information for automatic change request

Lines 1(b)–(h) confirm the change is automatic, that the taxpayer is not under examination on this issue, and that no prior 3115 has been filed for this property in the last five years. The "year of change" is the 2026 tax year.

Part II, line 12 — The §481(a) adjustment number

This is the key line. Worked numbers for the example:

• Should have claimed (cost-seg method) for tax years 2022–2025:

- 5-year property: $52,000 × 100% bonus = $52,000 (all in 2022) - 15-year property: $34,000 × 100% bonus = $34,000 (all in 2022) - Building (27.5-yr) on remaining basis $314,000: ~$10,000 in 2022 (mid-month, March = 9.5/12 of annual), ~$11,400/yr in 2023–2025

• Actually claimed (straight-line on full $400,000):

- ~$11,500 in 2022 (mid-month March), ~$14,545/yr in 2023–2025

• Cumulative difference: ~$86,000 + ~$10,000 + ~$34,200 vs. ~$11,500 + ~$43,635 ≈ $75,000 §481(a) catch-up

The mechanics align with _compute_481a() in our calculator engine — bonus on the accelerable buckets, full-year MACRS on the remainder, mid-month building S/L using the building_year1_fraction() formula.

Schedule E — Statement of cost segregation

Form 3115 instructions require an attached statement describing the change. The statement names the property, identifies the engineering firm, references the IRS Cost Segregation Audit Techniques Guide (Chapter 4), and lists the asset classes with reclassified dollar amounts. Treas. Reg. §1.446-1(e)(3)(ii) is the regulatory authority. Capstan, ETS, and CSSI templates are publicly visible; the user's CPA or firm produces the version that matches the study.

Section D, line 25 — Method of accounting being changed

Enter "Straight-line, 27.5-year, mid-month" for the existing method and "MACRS — 5-year (200% DB), 15-year (150% DB), 27.5-year S/L; with §168(k) bonus depreciation per Pub. L. 119-21 §70301" for the proposed method. The 100% bonus rate applies to the 5-year and 15-year buckets because the property was acquired in March 2022 (post-2017, pre-phase-down).

Schedule B — Depreciation method change details

Schedule B captures the asset-by-asset breakdown — useful when the engineering report itemizes carpet, cabinets, fences, and driveway as separate components. For a residential rental with a typical study, the entries collapse into three rows: 5-year personal property ($52,000), 15-year land improvements ($34,000), and 27.5-year building ($314,000). The convention column reads "HY" for the 5-year and 15-year buckets (March acquisition is Q1 — half-year, not mid-quarter). See our mid-quarter convention math walkthrough for when Q4 acquisitions force MACRS Tables A-5/A-6 instead.

Filing logistics — duplicate copies

Rev. Proc. 2015-13 §6.03 requires two copies of Form 3115:

1. 1. Original — attached to the 2026 Form 1040, filed by the return's due date (including extensions). For a calendar-year individual that is April 15, 2027 (or October 15 with a Form 4868 extension).
2. 2. Duplicate — mailed to the IRS National Office at the address in the Form 3115 instructions (currently Ogden, UT for automatic consent filings). The duplicate goes out on or before the date the original is filed; many CPAs mail it 30+ days earlier so the postmark is unambiguous.

Failing to file the duplicate is a procedural defect that can void automatic consent. Cohen v. Commissioner, T.C. Memo 2014-93 walks through a related procedural-defect outcome — read it before filing.

What the §481(a) becomes on the return

The negative $75,000 §481(a) flows to the 2026 Schedule E as additional depreciation on Form 4562 line 17 ("MACRS deductions for assets placed in service in tax years beginning before 2026"). At a 32% federal bracket, the §481(a) catch-up generates a roughly $24,000 federal tax effect — before passive-activity-loss gating under IRC §469. If the property owner is not a real-estate professional, the deduction is reported on Form 8582 and may be suspended until passive income materializes or the property sells. Our REPS two-prong walkthrough covers the §469(c)(7) test in detail.

Where the screening tool fits

The TaxProtestTx feasibility estimator takes the same inputs (purchase price, land, acquisition year, bracket, REPS posture) and produces a §481(a) catch-up estimate plus the year-1 federal tax effect — using the same formulas the engine applies on a current-year acquisition, just unwinding the four prior years of straight-line. The estimator output is directional, not a study; it's a screen for whether to commission the engineering deliverable.

Run a 2022-acquisition look-back screening →

Sources

• IRC §481(a) — Adjustments required by changes in method of accounting
• IRC §446(e) — Approval required for change of accounting method
• Treas. Reg. §1.446-1(e)(3)(ii) — Procedure for change of accounting method
• Rev. Proc. 2024-23 §6.01 — DCN 7 for depreciation method changes
• Rev. Proc. 2015-13 §6.03 — Duplicate filing requirement
• Cohen v. Commissioner, T.C. Memo 2014-93 — Procedural-defect line of cases
• IRS Form 3115 Instructions (Rev. Dec 2025)
• IRS Cost Segregation Audit Techniques Guide, Chapter 4

Disclaimer. This tutorial describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.