To correct depreciation errors on a past tax return, you take one of two paths: file Form 3115 (Application for Change in Accounting Method) if the same wrong treatment carried across two or more returns, or file an amended return if it was a one-time slip on a single year. Picking the wrong path can get the correction rejected outright, so sorting out which one applies is the first step. And the fix matters more than most owners realize, because Section 1016(a)(2) reduces your property’s basis by the depreciation you should have taken whether you claimed it or not.1Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis
Which Path Applies to Your Error
The IRS draws a hard line between a method error and an isolated mistake, and the correction procedure depends entirely on which side you’re on.
A method error is any wrong depreciation treatment applied consistently across two or more tax years. Using a seven-year recovery period when the asset should have been depreciated over five, picking the wrong convention, or treating land improvements as building components all become method errors once they repeat on consecutive returns. At that point the IRS considers you to have “adopted” that treatment as your accounting method, and changing it requires formal permission under Section 446.2Office of the Law Revision Counsel. 26 USC 446 – General Rule for Methods of Accounting That permission comes through Form 3115.
An isolated mistake is different. Transposing digits on an asset’s cost, forgetting one asset on a single year’s schedule, or an arithmetic error that doesn’t repeat are all one-time slips. The Internal Revenue Manual specifically excludes mathematical and posting errors from the definition of a method change.3Internal Revenue Service. IRM 4.11.6 – Changes in Accounting Methods Those get fixed on an amended return. A change in treatment that follows a change in the underlying facts (a property’s use changing after a renovation, say) is also not a method change, even when it affects depreciation going forward.
Why the Fix Can’t Wait
Many owners assume they can just catch up on missed depreciation when they sell. That is a costly misunderstanding. Section 1016(a)(2) requires basis to be reduced by depreciation “allowed or allowable,” whichever is greater.1Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis Even if you never claimed a dollar of depreciation, the IRS treats your basis as though you had when it calculates gain on the sale. You lose the deduction without reducing the taxable gain at disposal.
A rental owner who neglects to depreciate a $300,000 building for several years doesn’t just miss the annual deductions. At sale, the IRS computes depreciation recapture and capital gain as if the full allowable depreciation had been claimed. Filing Form 3115 to catch up is the only way to actually receive the deductions before the sale forces the basis reduction anyway.
Filing Form 3115 for a Method Error
Form 3115 is the IRS application for changing an accounting method, and it’s where most depreciation corrections land.4Internal Revenue Service. About Form 3115, Application for Change in Accounting Method Preparing it means pulling together, for each affected asset, the original cost basis (purchase price plus installation, delivery, and setup), the date placed in service (when it was ready and available for use, not necessarily the purchase date), the correct recovery period, and the correct method and convention. Common recovery periods run 5 years for computers and technological equipment, 15 years for land improvements, 27.5 years for residential rental property, and 39 years for nonresidential real property.5Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
Every depreciation-related Form 3115 requires completing Schedule E, which walks through the asset details and the correct versus incorrect calculations.6Internal Revenue Service. Instructions for Form 3115
Designated Change Numbers
Each type of depreciation correction has a designated change number (DCN) that tells the IRS exactly what you’re fixing. The ones you’ll see most often:
- DCN 7: changing from an impermissible depreciation method to a permissible one for property you still own. This covers the broadest set of corrections, from wrong recovery periods to wrong methods.
- DCN 107: same type of correction, but for property you’ve already disposed of where you claimed less depreciation than allowable (or none at all).
- DCN 200: switching between two permissible MACRS methods for property you still own.
- DCN 246: correcting errors related to bonus depreciation under the Section 168(k) regulations.
The right DCN matters because it determines whether your change qualifies for automatic consent. The IRS updates the list of automatic changes periodically through revenue procedures, so check the current version before filing.
The Section 481(a) Adjustment
The heart of Form 3115 is the Section 481(a) adjustment, which reconciles the depreciation you actually claimed against what you should have claimed under the correct method.7Office of the Law Revision Counsel. 26 USC 481 – Adjustments Required by Changes in Method of Accounting You calculate the cumulative difference from the time the asset was placed in service through the end of the year before the year of change. That total is your 481(a) adjustment.
A negative adjustment means you underclaimed and are owed a catch-up deduction. Under automatic consent, the entire negative adjustment goes on the return for the year of change, which can produce a substantial one-time deduction. A positive adjustment means you overclaimed and owe additional income. Positive adjustments are generally spread over four tax years, one-quarter each, beginning with the year of change, which softens the hit.
How and Where To File
The filing process has two parts, and both must happen. Attach the original Form 3115 to your timely filed federal return (including extensions) for the year of change. Then mail a signed copy to the IRS in Ogden, Utah, no earlier than the first day of the year of change and no later than the date you file the return.6Internal Revenue Service. Instructions for Form 3115 The copy attached to your return doesn’t need a signature; the one sent to Ogden does.
Most depreciation corrections qualify for automatic consent, so you don’t wait for IRS approval before using the new method. Filing according to the prescribed procedures is itself the consent mechanism, and no user fee is required. If your specific change isn’t on the automatic list, you’ll file under the non-automatic procedures instead: the request goes to the National Office in Washington, D.C., a user fee applies, and the IRS must affirmatively approve before you implement.
If you e-file, the original Form 3115 can be a PDF attachment. The signed copy to Ogden still goes on paper regardless of how you filed the return.
Bonus Depreciation and Section 179 Are Handled Differently
These are the two areas where owners most often miss deductions or apply them wrong, and they follow different correction rules from each other.
Missed or incorrectly applied bonus depreciation under Section 168(k) is generally corrected through Form 3115. DCN 246 covers changes from an impermissible to a permissible method under the bonus depreciation regulations, and DCN 241 and DCN 245 handle late elections to claim bonus depreciation that was available but not taken.6Internal Revenue Service. Instructions for Form 3115 Bonus depreciation is phasing down: for assets placed in service in 2026, only 20% first-year bonus is available under the current schedule, so the catch-up on recent assets will be smaller than on assets placed in service in earlier years.
Section 179 works differently because it is an election, not a method of accounting. If you failed to claim Section 179 when you placed the asset in service, or you want to revoke the election, the fix is on an amended return within the normal amendment period, not on Form 3115.8Internal Revenue Service. Instructions for Form 4562 (2025) File a corrected Form 4562 with the amended return for the year the property was placed in service. Section 179 and regular depreciation errors look similar but the correction paths don’t overlap.
When an Amended Return Is the Right Tool
Isolated errors that appear on only one return don’t qualify as method changes and get fixed on an amended return. Typical cases: the wrong purchase price entered for an asset, one asset omitted from a single year’s schedule, or a calculation error that doesn’t repeat. Individuals file Form 1040-X.9Internal Revenue Service. About Form 1040-X, Amended U.S. Individual Income Tax Return Corporations file Form 1120-X.10Internal Revenue Service. About Form 1120-X, Amended U.S. Corporation Income Tax Return Both require the original figures, the corrected figures, and an explanation. Include the supporting depreciation calculations to avoid processing delays. The 1120-X instructions specifically note that missed depreciation deductions and overlooked expenses are valid reasons to amend.11Internal Revenue Service. Instructions for Form 1120-X (Rev. December 2025)
The deadline to file an amended return claiming a refund is the later of three years from when you filed the original return or two years from when you paid the tax.12Internal Revenue Service. File an Amended Return If you filed early, the three-year clock starts from the April due date. Once both deadlines pass, refund claims for that year are gone.
This is one reason Form 3115 is often the better tool even when an amended return technically works: the 481(a) adjustment sweeps every prior year into the current return regardless of how far back the error began, which sidesteps the statute of limitations entirely.
Penalties, Interest, and CP2000 Notices
Depreciation errors that produce underpaid tax can trigger the accuracy-related penalty of 20% of the underpayment attributable to negligence or a substantial understatement.13Internal Revenue Service. Accuracy-Related Penalty Interest on unpaid amounts compounds daily at the federal short-term rate plus three percentage points for most taxpayers.14Internal Revenue Service. Quarterly Interest Rates Voluntarily correcting the error before the IRS catches it generally eliminates penalty exposure, which is a strong reason to file proactively.
If the IRS spots a discrepancy through information matching, you may get a CP2000 notice proposing changes to your return. A CP2000 is not a bill and not an audit. You can agree, partially agree, or dispute with documentation, and ignoring the response deadline leads to an automatic assessment.15Internal Revenue Service. Understanding Your CP2000 Series Notice If the notice is correct but you have other adjustments to report, the IRS says to file Form 1040-X with “CP2000” written at the top alongside your notice response.
Don’t Forget the State Return
A federal depreciation correction almost always affects your state income tax because most states start with federal adjusted gross income or federal taxable income. States generally require an amended state return within a set window after the federal change is finalized, and the exact deadline varies. Some give you 90 days, others 120, and a few allow longer. Failing to notify the state can produce separate penalties and interest, so check your state’s rules as soon as the federal correction goes out the door.