How to Catch Up Missed Depreciation on a Rental Property with Form 3115.

A landlord bought a duplex in June 2017, self-prepared her returns, and entered the mortgage interest, insurance, and property taxes on Schedule E every year. The software never pressed her on depreciation, so she never took any. Nine filed returns later she is sitting on roughly $82,000 of deductions she skipped, and her first instinct, amending the old returns, is both closed off and unnecessary. The way to catch up missed depreciation on a rental property is one Form 3115 filed with the current year's return, and it brings every skipped dollar back in a single year.

Skipping depreciation does not preserve your basis. IRC §1016(a)(2) reduces the basis of a rental by the depreciation allowed or allowable, whichever is greater, so when you sell, your gain is computed as if you had depreciated the building all along. Every dollar you failed to deduct still comes back as taxable gain. There is no option to skip depreciation and keep the basis. The only question is whether you collect the deduction along the way. That same building basis drives other elections down the road, like the partial disposition election when you replace a roof, so getting the depreciation schedule right has value beyond the catch-up itself.

The dividing line is two years. If you missed depreciation on only your most recent return, that is an error, and you fix it by amending before you file the next return. Once you have treated the property the same wrong way on two or more consecutively filed returns, Treas. Reg. §1.446-1(e)(2)(ii)(d) treats that as an established method of accounting, and an established method cannot be fixed by amending. Form 3115 becomes the only route. It is also the better one. An amended return can only reach back three years under the §6511 refund statute. A §481(a) adjustment has no lookback limit, so depreciation missed in 2017, or in 2007, comes back in full.

Claiming no depreciation when depreciation was allowable is an impermissible method, and the change to the correct method is automatic change number 7, found in section 6.01 of Rev. Proc. 2025-23, the current list of automatic changes for Forms 3115 filed on or after June 9, 2025. Automatic means consent is granted when you file; the IRS does not review the request first. You compute the depreciation that was allowable for every closed year under the correct method, which for a residential rental building is 27.5-year straight line with a mid-month convention under §168(c). The total becomes a negative §481(a) adjustment, and under Rev. Proc. 2015-13 a negative adjustment is deducted in full in the year of change, while a positive one is spread over four years. On a rental, the deduction lands on Schedule E as an other expense.

The catch-up is still a rental deduction, so the passive activity loss rules apply to it like any other. If the adjustment throws your Schedule E into a loss, an active participant can use up to $25,000 of it against wages and other income, but that allowance phases out between $100,000 and $150,000 of modified AGI under §469(i), which excludes most people with income worth planning around. Above the phaseout, the loss is suspended unless you have passive income to absorb it or a spouse who qualifies as a real estate professional. Suspended is not lost. Under §469(g), a complete disposition of the property releases every suspended dollar, which is why the catch-up pairs well with a sale year. The code even provides a companion change for property you already sold, automatic change number 107 in section 6.07 of Rev. Proc. 2025-23, so a sale that closed in the year of change does not shut the door.

Form 3115 is filed in duplicate. The original attaches to a timely filed original return for the year of change, extensions included, and a signed copy goes separately to the IRS in Ogden, UT 84201, M/S 6111, by mail or by fax to 844-249-8134, no earlier than the first day of the year of change and no later than the day you file the return. There is no user fee for an automatic change. For a 2025 calendar-year return on extension, the filing deadline is October 15, 2026. If you already filed your 2025 return without the form, Treas. Reg. §301.9100-2 gives you six months from the unextended April due date to file an amended return with the Form 3115 attached, which for 2025 also runs to October 15, 2026. Miss both windows and nothing is forfeited, but the year of change rolls forward to 2026 and the deduction waits another filing season.