Look-Back Cost Seg for a 2020 Purchase: a Walkthrough
How a 2020 acquisition rolls 6 years of unclaimed bonus depreciation into a §481(a) catch-up on a 2026 Form 3115. Worked example at 100% bonus and 32% bracket.
Look-Back Cost Seg for a 2020 Purchase: a Walkthrough
This tutorial covers a single mechanic: the §481(a) catch-up adjustment for a 2020 acquisition, brought on a 2026 Form 3115. The calendar matters because the bonus depreciation rate that applies to the catch-up is the rate in effect in the original placement-in-service year — and 2020 sits squarely in the TCJA 100% bonus window. Six years of unclaimed accelerated depreciation collapse into a single year-of-change adjustment.
What "look-back" actually means
Once a property has been on the same depreciation schedule for two consecutive returns, IRC §446(e) treats the schedule as the established method of accounting. Reclassifying portions of basis into 5-year, 7-year, and 15-year recovery periods is a change in method of accounting under Treas. Reg. §1.446-1(e)(2)(ii)(d)(2)(i). The procedural mechanism is Form 3115, the change number is DCN 7 (the workhorse for held-property depreciation method changes), and the catch-up arrives in the year of change as a §481(a) adjustment.
The defining feature of the look-back path is that the original year's bonus rate carries through to the catch-up. A 2020 acquisition was 100% bonus property under IRC §168(k) at the TCJA-original rate. The catch-up dollars on the 5-year, 7-year, and 15-year reclassified slices roll forward at that 100% rate, even though the form is filed in 2026.
Worked example — 2020 LTR, study in 2026
A property owner purchased a long-term rental in August 2020 for $540,000. The county appraisal allocated $108,000 to land, leaving $432,000 of depreciable basis on the improvements. Through 2025, the property has been depreciated 27.5-year straight-line on the full $432,000 with mid-month August placement. In 2026, the owner brings the property to a CPA who files a Form 3115 with the year-of-change return.
The screening calculator allocates (illustratively, base LTR percentages with no per-item upgrades): 10% to 5-year, 0.5% to 7-year, 7% to 15-year, leaving 82.5% on the 27.5-year building.
- 5-year personal property: $432,000 × 10% = $43,200
- 7-year personal property: $432,000 × 0.5% = $2,160
- 15-year land improvements: $432,000 × 7% = $30,240
- 27.5-year building (smaller): $432,000 × 82.5% = $356,400
What was actually claimed (2020-2025)
Straight-line on $432,000 at 27.5 years with mid-month August placement.
- 2020: $432,000 / 27.5 × 4.5/12 ≈ $5,891 (mid-month August → 4.5 months in service)
- 2021-2025 (5 full years): $432,000 / 27.5 = $15,709 per year, total $78,545
- Total actually claimed through 2025: ~$84,440
What should have been claimed under cost-seg
2020 is inside the TCJA 100% bonus window. The full $75,600 of accelerable basis ($43,200 + $2,160 + $30,240) hits as bonus in 2020. The remaining building S/L runs against the smaller $356,400 base.
| Year | 100% bonus on accelerable | Building S/L on $356,400 | Total "should have" | |------|--------------------------:|-------------------------:|--------------------:| | 2020 | $75,600 | ~$4,860 (mid-month Aug) | ~$80,460 | | 2021-2025 (5 yrs) | $0 | $12,960/yr × 5 = $64,800 | $64,800 | | Total | $75,600 | ~$69,660 | ~$145,260 |
§481(a) catch-up
Catch-up = should have − actually claimed = $145,260 − $84,440 = roughly $60,800. That figure lands on the 2026 return as a §481(a) adjustment.
At a 32% marginal federal bracket, the year-1 federal tax effect from the catch-up alone is roughly $19,500. The screening tool surfaces this as the dominant component of the threshold-label decision and compares it to the typical $3,000-$8,000 cost of a full engineering deliverable.
Try a 2020 LTR look-back estimate →
Why a 2020 catch-up looks different from a 2024 catch-up
A 2024 acquisition is in the TCJA phase-down — only 60% of accelerable basis hit as bonus in the original year. A 2024 look-back catch-up rolls forward at 60% on the accelerable basis plus the building S/L delta, which produces a smaller catch-up dollar on the same property economics. A 2020 look-back rolls forward at 100% on the same accelerable basis, plus a longer accumulated S/L delta because the building has been on the wrong schedule for an extra four years.
The screening calculator picks the bonus rate from BONUS_DEPRECIATION_RATES keyed on purchase_year. The 2017-2022 acquisitions all use 100%; 2023 uses 80%; 2024 uses 60%; 2025 is bimodal (40% on/before Jan 19, 100% after); 2026+ is 100% under the OBBBA permanent restoration.
What the §481(a) catch-up does not do
It does not amend prior returns; the open years stay closed. It does not refund interest on the unclaimed depreciation. It does not exempt the property from §1245 recapture when the property is eventually sold — every accelerated dollar comes back as ordinary income on disposition unless deferred through a §1031 exchange and tracked on the carryover basis. And it does not pre-clear an §469 passive-activity-loss issue: an LTR catch-up still generates passive losses unless the owner qualifies under §469(c)(7) as a real-estate professional.
See how a different 2020 acquisition compares →
Citations
- IRC §446(e), §481(a) — accounting-method changes and §481(a) adjustments.
- Treas. Reg. §1.446-1(e)(2)(ii)(d)(2)(i) — depreciation as a method of accounting.
- IRC §168(k) (TCJA, 2020 vintage) — 100% bonus depreciation.
- Rev. Proc. 2024-23 §6.01 + Appendix — automatic-consent procedures, DCN 7.
- IRS Publication 946 — recovery periods, mid-month convention for buildings.
- IRC §1245 — recapture of accelerated depreciation as ordinary income on disposition.
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.