Form 8866: Look-Back Interest, Filing, and Where to Send It

Form 8866 is the IRS form that reconciles depreciation you claimed under the income forecast method against what your depreciation should have been based on the property’s actual income, then computes the interest you owe the IRS, or that the IRS owes you, on the resulting tax difference. You file it in specific look-back years after placing qualifying property in service, and where you send it depends on whether the calculation produces an amount owed or a refund.¹

When Form 8866 Is Required

If you depreciated property under the income forecast method and placed that property in service after September 13, 1995, you generally must file Form 8866 in each recomputation year. A recomputation year is the third and tenth taxable year after the year the property was placed in service.² Property placed in service in 2022 triggers a Form 8866 filing with your 2025 return and again with your 2032 return.

The tenth-year filing is the final settling. By that point, the statute requires that the income figures used to calculate depreciation equal the amount actually earned before the close of that tenth year, and any remaining depreciable basis is written off in that year.³

The income forecast method itself is available only for a narrow list of assets under IRC Section 167(g)(6): films, videos and sound recordings, copyrights, books, patents, and other property specified in regulations. If your property is not on that list, Form 8866 does not apply to you.

When You Do Not Have to File

Two carve-outs eliminate the filing requirement.

First, a recomputation year is not triggered if the actual income from the property is within 10 percent of the estimated income you used to calculate depreciation for every prior year before that recomputation year.² If your projections tracked reasonably close to reality across the board, no look-back adjustment is needed.

Second, the look-back method does not apply at all to property with a cost basis of $100,000 or less.³ This exception is applied property by property, so a low-cost copyright can be exempt even if you also own a higher-cost film that does trigger the filing requirement.

Who Actually Files

The filing requirement reaches any taxpayer who used the income forecast method, whether the underlying return is Form 1040, Form 1120, Form 1065, or Form 1120-S.² Partnerships and S corporations that depreciated qualifying property generally file at the entity level.

Pass-through owners need to pay attention. If the partnership or S corporation that owns the property is not itself subject to the look-back method at the entity level for that property, the responsibility shifts down. Each partner or shareholder must file their own Form 8866 for the tax year that ends with or includes the entity’s recomputation year.² If you hold an interest in an entity that owns qualifying property, confirm which level is handling the look-back.

How the Look-Back Calculation Works

The look-back is a hypothetical recomputation, not an amended return. You go back to each prior year in which you claimed income forecast depreciation on the property and ask what your depreciation would have been if you had used the actual income earned through the recomputation year, plus a revised estimate of future income through the tenth year.³

The difference between original and recomputed depreciation produces an adjustment to each prior year’s taxable income, which in turn produces a hypothetical overpayment or underpayment of tax for that year. Interest is calculated on that difference. Your prior returns are not reopened.

Form 8866 offers two ways to get to the tax difference. You can recompute actual tax liability by comparing the tax you originally owed against the tax you would have owed with the recomputed depreciation. Or you can use the simplified method on Line 6, which multiplies the net income adjustment by the applicable regular tax rate for each prior year.⁴ For most filers, the simplified calculation is the practical choice because it avoids reworking each prior year’s return.

Filling Out the Form

Enter the recomputation year at the top. Each column on the form represents a prior tax year in which you depreciated the property under the income forecast method or a year affected by those deductions.⁴

Line 1 takes the taxable income or loss originally reported for each prior year. Do not adjust for net operating loss, capital loss, or Section 1256 loss carrybacks unless those carrybacks resulted from the income forecast recomputation itself.
Line 2 is the net adjustment to taxable income for each prior year. A positive number means you over-depreciated; a negative number means you under-depreciated. You must attach a schedule identifying each property and showing, for each prior year, depreciation originally deducted versus depreciation allowable based on actual income.
Line 3 adds Lines 1 and 2. A negative result is a look-back net operating loss for that year.
Lines 4 and 5 apply only if you are recomputing actual tax liability: original tax on Line 4, recomputed tax on Line 5, each reduced by allowable non-refundable credits.
Line 6 is the simplified path: multiply Line 2 by the applicable regular tax rate for each prior year.
Lines 7 and 8 calculate interest on the underpayment or overpayment for each prior year, compounded daily, from the original due date of that prior year’s return to the due date of the recomputation year’s return.

The Line 2 attachment is where the real work sits. For each property, you need cumulative actual income earned through the recomputation year, the original estimated total income, and the resulting depreciation recalculation for every affected year.

Interest Rate and Accrual

Interest uses the adjusted overpayment rate defined in IRC Section 460(b)(7), compounded daily.³ The rate is tied to the federal short-term rate and is set quarterly. For Q1 2026, the non-corporate overpayment and underpayment rates are both 7 percent.⁵ For Q2 2026, both rates dropped to 6 percent for non-corporate taxpayers.⁶

Interest runs from the due date, without extensions, of each affected prior year’s return to the earlier of the due date of the recomputation year’s return or the date you actually file it.⁴ Because rates can change every quarter and are compounded daily, the calculation for a property placed in service several years ago will typically span multiple rate periods.

Where to File Form 8866

The filing procedure splits based on the outcome of your calculation.

If You Owe Interest

Attach Form 8866 to your income tax return for the recomputation year. The interest owed is added to your tax liability on the appropriate line of the return: Schedule 2 (Form 1040), Part II for individuals; Line 25 for partnerships filing Form 1065; and the additional taxes section on Form 1120-S for S corporations.⁴

If You Are Owed a Refund

Do not attach the form to your return. File it separately by mail. Individuals send it to the IRS in Philadelphia, PA 19255-0001. All other filers send it to Cincinnati, OH 45999-0001.² Only the taxpayer who depreciated the property in the year an overpayment occurred may request the refund. Filers often assume they can simply net a refund on the current-year return the same way they net an amount owed, and that assumption produces a lost refund.

What Happens If You Skip It

Not filing is not a quiet choice. The IRS states that failing to file the form, failing to provide the required information, or providing fraudulent information can cause you to forfeit any interest refund you would otherwise be owed and expose you to additional penalties.² Interest you owe the IRS under the look-back method does not disappear because you failed to compute it; that liability exists by operation of statute and can be assessed with additional penalties and interest for late payment. If you realize you missed a recomputation year, filing as soon as possible is the least costly path.

1
Internal Revenue Service. About Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method
2
Internal Revenue Service. Instructions for Form 8866 (12/2025)
3
Office of the Law Revision Counsel. 26 USC 167 – Depreciation
4
Internal Revenue Service. Instructions for Form 8866 – Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method
5
Internal Revenue Service. Quarterly Interest Rates
6
Internal Revenue Service. Internal Revenue Bulletin 2026-8