Form 3115 Instructions for Cost Segregation Catch-Up Depreciation

The Form 3115 instructions for a cost segregation catch-up are one filing sequence: for property the taxpayer placed in service in an earlier tax year and still owned at the start of the year of change, and when the other eligibility rules are met, the original Form 3115 is attached to the timely filed original federal return (including extensions) for the year of change. Designated automatic accounting method change number (DCN) 7 goes on line 1a, and a signed copy goes to the IRS in Ogden, Utah, no earlier than the first day of the year of change and no later than the date the original is filed, under section 6.01 of Rev. Proc. 2025-23 (the IRS's list of automatic changes) and section 6.03(1) of Rev. Proc. 2015-13.

This walkthrough covers the filing steps of a cost segregation catch-up: where the form goes, which lines and statements matter, and how the §481(a) adjustment is spread. For the pillar explanation of the filing, read Form 3115 for cost segregation; for when a missed-depreciation catch-up is available at all and how bonus depreciation changes it, read the cost segregation Form 3115 catch-up depreciation walkthrough. To test whether a property fits, use the cost segregation qualifier.

Who can use the automatic Form 3115 route for cost segregation catch-up depreciation?

Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules.

For a property the taxpayer placed in service in the tax year immediately before the year of change, with one filed return, either route is available: Form 3115 with the year-of-change return, or an amended return (or, for a partnership, an administrative adjustment request under §6227) for the placed-in-service year filed before the return for the following year (the year of change) is filed, under section 6.01(1)(b) of Rev. Proc. 2025-23. A building the taxpayer placed in service in the tax year of the return the cost segregation study is for goes on that original return and needs no Form 3115. The year that counts is the year the taxpayer placed it in service, not the seller's: an older building a buyer bought and placed in service this year goes on this year's original return.

Property is placed in service when it is ready and available for its assigned function under Treas. Reg. §1.46-3(d)(1)(ii) and Treas. Reg. §1.167(a)-11(e)(1)(i), so the closing date alone does not always fix the year. A prior election out of bonus depreciation cannot be undone through this change (section 6.01(1)(c)(vi) of Rev. Proc. 2025-23).

Where and when is Form 3115 filed for a cost segregation catch-up?

The original Form 3115 is attached to the filer's timely filed federal income tax return, including extensions, for the year of change, and a signed copy goes to the IRS in Ogden, Utah, no earlier than the first day of the year of change and no later than the date the original is filed with that return. The Instructions for Form 3115 say the original attachment does not need to be signed, the duplicate copy must be signed and may be a photocopy, the address for an automatic change differs from the address for a non-automatic request, and the IRS does not send an acknowledgement of receipt for an automatic change. A taxpayer under examination, before an Appeals office or before a federal court must also give an additional signed copy to the examining agent, Appeals officer and government counsel no later than the date the Form 3115 is timely filed, under section 6.03(3)(a) of Rev. Proc. 2015-13.

No user fee is required for a Form 3115 filed under the automatic change procedures, according to the same instructions; a request for an extension of time to file the form does carry one. The year of change is the tax year of the return the Form 3115 is attached to, so a cost segregation study finished after year-end can still support a catch-up on a return that has not yet been filed, as long as that return is still timely filed (including extensions), which the catch-up walkthrough explains for the 2026 return.

Which lines, schedules, and statements of Form 3115 matter for cost segregation?

Part I, line 1a, takes the DCN, and DCN 7 is the number for changing depreciation from an impermissible to a permissible method for depreciable property the taxpayer owned at the beginning of the year of change; section 6.01(9) of Rev. Proc. 2025-23 states the number. Qualified improvement property the taxpayer placed in service after December 31, 2017 is changed under section 6.18 of Rev. Proc. 2025-23 (DCN 244) and is excluded from section 6.01 by section 6.01(1)(c)(xvii), and a taxpayer with both changes in one year of change follows section 6.18 for how the numbers are entered. Every applicant changing a depreciation method completes Schedule E of Form 3115 and attaches a statement describing the property, including its description, type, placed-in-service year and use, and any tax credit, subsidy or grant received with the basis adjustments the Code requires.

Section 6.01(3)(b) of Rev. Proc. 2025-23 requires these statements, as applicable and to the extent not provided elsewhere on the form: a detailed description of the present and proposed methods (a general description such as erroneous method to proper method is unacceptable), a description of the taxpayer's business or income-producing activity, a statement of the facts and law supporting the new classification and asset class, and the year the taxpayer placed the property in service. For a cost segregation catch-up that moves a building component from §1250 property to §1245 property, section 6.01(3)(b)(vii) also requires a statement of the facts and law supporting the §1245 classification and the representation the section prescribes, and an owner and lessor describes the lessee's activity in the facts-and-law statement. A cost segregation study is the support for the new classification, and the form carries the procedure. Under section 6.01(4) of Rev. Proc. 2025-23 a qualified small taxpayer (one whose average annual gross receipts for the three preceding tax years are within the section's limit) skips certain Part II and Part IV lines, and still completes Schedule E and attaches the statements.

The signature rules depend on the filer: for a couple filing a joint return, both spouses sign; for a partnership, one general partner or LLC member who has personal knowledge of the facts and is authorized to sign; for a corporation or S corporation, the officer with personal knowledge of the facts and authority to bind the filer. The Instructions for Form 3115 also say not to file Form 3115 to make or revoke an election under section 167 or 168, or to change the placed-in-service date.

How is the §481(a) adjustment computed and spread for cost segregation catch-up depreciation?

The §481(a) adjustment equals the difference between the total depreciation taken into account for the property under the taxpayer's present method and the total depreciation allowable under the proposed method, for open and closed years before the year of change, under section 6.01(5) of Rev. Proc. 2025-23. Under section 6.01(7)(e)(ii) of Rev. Proc. 2025-23, allowable depreciation takes the additional first-year depreciation of §168(k) into account for qualified property unless the taxpayer made a timely valid election out of it, or a deemed election out, for that class of property, so bonus depreciation for qualified property with no election out sits inside the adjustment rather than on a separate current-year line; the Instructions for Form 4562 say the special depreciation allowance applies only for the first year the property is placed in service.

Under section 7.03(1) of Rev. Proc. 2015-13, and except as the revenue procedure or the list of automatic changes provides otherwise, the adjustment period is one taxable year, the year of change, for a negative §481(a) adjustment, and four taxable years, the year of change and the next three, taken into account ratably, for a positive adjustment; a taxpayer may elect a one-year period for a positive adjustment under $50,000 under section 7.03(1)(c). A cost segregation catch-up that accelerates depreciation produces a negative (favorable) adjustment, which is taken in full in the year of change, and section 7.03(3)(b) of Rev. Proc. 2015-13 shortens a positive adjustment to two taxable years when the taxpayer is under examination, unless an exception in that section applies.

The net §481(a) adjustment is entered on Part IV, line 26 of Form 3115, and the preparer carries it onto the return under the return's own instructions. For depreciation on property placed in service in earlier years, the 2025 Instructions for Form 4562 send current-year MACRS deductions for property placed in service in earlier years to Part III, Section A, line 17, whose cutoff year rolls forward with each form year, so the preparer checks the instructions for the year of change.

When is Form 3115 not the right path for cost segregation depreciation?

Form 3115 is not the right path when the taxpayer placed the building in service in the tax year of the return the study is for, when the change would revoke a timely valid election or make a late election, or when a limit in section 6.01(1)(c) of Rev. Proc. 2025-23 applies, such as property for which a federal income tax credit was claimed (section 6.01(1)(c)(xvi)) or qualified improvement property covered by section 6.18 (section 6.01(1)(c)(xvii)). A property the taxpayer disposed of before the year of change is a separate change under section 6.07 of Rev. Proc. 2025-23, so ownership at the start of the year of change is checked first.

Cost segregation accelerates deductions; over the life of the building the same basis is recovered. Whether a large catch-up deduction is usable this year depends on the owner's passive-activity position, and whether taking it is worth it depends on a hold long enough to survive recapture, which the catch-up walkthrough covers, and an investor in an Opportunity Zone structure reviews the separate timing rules in Opportunity Zone cost segregation.

What should the owner and CPA gather before preparing Form 3115?

The owner and CPA gather the depreciation schedule and the filed-return history that show how many returns used the old method, the cost segregation study, and any elections already made for the property; the catch-up walkthrough lists the cost records. ClickDrag Finance's look-back study carries the DCN 7 identification, the §481(a) calculation, the statement narrative, and a Form 4562 crosswalk; the taxpayer's CPA files the form. To compare providers on these deliverables, see best cost segregation companies.

When we read the IRS's Form 3115 page on November 5, 2026, it linked the Instructions for Form 3115 (Rev. December 2022), which name an earlier list of automatic changes, Rev. Proc. 2022-14, while section 6.01(9) of Rev. Proc. 2025-23 gives the same number, 7, for the depreciation change. Check irs.gov/forms-pubs/about-form-3115 for the current edition before filing.

Frequently Asked Questions

Where is Form 3115 filed for a cost segregation catch-up?

For a cost segregation catch-up under the automatic change procedures, the original Form 3115 is attached to the timely filed federal return, including extensions, for the year of change, and a signed copy goes to the IRS in Ogden, Utah, by the date the original is filed. The change is made under section 6.01 of Rev. Proc. 2025-23 and section 6.03(1) of Rev. Proc. 2015-13.

Does a Form 3115 for cost segregation depreciation carry a user fee?

A Form 3115 filed under the automatic change procedures for a depreciation correction carries no user fee, according to the Instructions for Form 3115, which say no user fee is required for an automatic change. A non-automatic request is a different filing with its own rules, and a request for an extension of time to file the form carries a fee.

Who signs Form 3115 for a cost segregation catch-up?

The duplicate copy filed with the IRS must be signed, and the original attached to the return does not need a signature, according to the Instructions for Form 3115. For a joint return both spouses sign, for a partnership one authorized general partner or LLC member with personal knowledge of the facts signs, and for a corporation or S corporation the officer with personal knowledge and authority to bind the filer signs.

How is the §481(a) adjustment from cost segregation depreciation spread?

A negative (favorable) §481(a) adjustment, which is what accelerated cost segregation depreciation normally produces, is generally taken in full in the year of change, and a positive adjustment is generally spread ratably over four taxable years, under section 7.03(1) of Rev. Proc. 2015-13. A positive adjustment is spread over two taxable years when the taxpayer is under examination, under section 7.03(3)(b), unless an exception in that section applies.

Can a prior bonus depreciation election be changed through Form 3115?

A prior election out of bonus depreciation cannot be undone through this depreciation change, because section 6.01(1)(c)(vi) of Rev. Proc. 2025-23 excludes revoking a timely valid election, or making a late election, from the change. The preparer reviews the placed-in-service year return and any attached §168(k)(7) election statement before computing the §481(a) adjustment.