Who this is for, and the moment you are in
You bought a rental in 2018 or 2019, did your own return in tax software, and never set the building up as an asset, so there has been no depreciation line on Schedule E since. Or the house was inherited and nobody ever established a basis. Or a prior preparer depreciated the full purchase price including land, or used a 39-year life on a residential property. Each of these is the same error in a different outfit, and each keeps running until somebody fixes it.
The moment it surfaces is usually a new CPA reading the old returns, a sale coming into view, a change of software, or a cost-segregation estimate that asks for a depreciation schedule that does not exist. Sometimes it is just the question "did my first CPA ever depreciate this?" asked out loud.
Once you have filed two or more returns without the deduction you have, in the IRS's terms, adopted a method of accounting, and the way out is a change of method on Form 3115 under the automatic procedures, not an amended return. The Form 3115 instructions say no user fee is required for an automatic change, and that a negative §481(a) adjustment is generally taken in one tax year, the year of change. So the whole missed amount arrives on a single return, and the schedule runs correctly from there.
If you are the CPA who inherited this client, the packet is your starting point and you can ask about wholesale terms through the form.
What you get
Everything in the packet is arithmetic from two records, your closing statement and the county assessor's record, under rules we cite. The only prose we write is the cover note to your CPA.
- The land and building split for the property from the public assessor record, with the assessor ratio and, in the packet, land comps, stated as allocation support under the IRS's reasonable-method rule (Pub. 551), never as a valuation.
- The allowed-or-allowable depreciation schedule year by year from the placed-in-service date, on the basis from your closing statement and the 27.5-year residential recovery period, against what each return actually claimed.
- The §481(a) adjustment, reconciled to that schedule, with the year-of-change arithmetic written out.
- The corrected asset ledger and MACRS schedule going forward.
- Draft Form 3115 sections for the automatic change (DCN 7) with the attachment language, for your CPA to review, complete, sign and file with the return; and a one-page cover note for the CPA.
| Tax year | Allowable | Claimed | Difference |
|---|---|---|---|
| 2019 (first year) | allowable | 0 | allowable |
| 2020 | allowable | 0 | allowable |
| … | … | … | … |
| 2025 | allowable | 0 | allowable |
| §481(a) adjustment | sum of differences |
The schedule in your packet carries real dollars on each line, from your basis and dates. A packet whose §481(a) line does not equal the sum of its schedule does not ship; the reconciliation is the QC gate.
How it works
- You upload the closing statement and the depreciation page of your last return. If the property was inherited, the date-of-death value document instead of a closing statement. If there is no depreciation page, you tell us so; that is the case the packet is for.
- We read the assessor record, split land from building, and run the schedule. The split is the assessor ratio, cross-checked against land comps in the packet; the schedule is straight arithmetic from the placed-in-service date; the §481(a) adjustment is the sum. If the closing statement cannot be read, you get a HOLD and a question, never a guess.
- Your CPA reviews it, completes and signs Form 3115, and files it with the return. The taxpayer signs too. We do not file, we do not sign, and we do not represent you before the IRS.
Prices
A rough figure for the depreciation not taken, from the purchase price, the year placed in service and the number of returns filed without it, assuming 80 percent of the price is building and the 27.5-year residential recovery period.
The land and building split from the assessor record, the allowed-or-allowable schedule year by year, and the §481(a) adjustment reconciled to it, in a workpaper your CPA files from. Two business days.
The computation plus the corrected asset ledger, the MACRS schedule going forward, the land-comp exhibit for the allocation, the draft Form 3115 sections for DCN 7 with the attachment language, and the cover note for your CPA. Two business days.
The same computation or packet for a second or later property in the same order.
Prices in USD. CPAs who want packets for their clients can ask about wholesale terms through the form.
Why it costs $99 and $249
A CPA who prepares a Form 3115 from scratch, reconstructing the schedule and drafting the attachment, typically bills in the range of $1,500 to $3,000 and takes about a week, and many will not take a one-off 3115 at all in season. The other thing people do is start depreciating this year and let the past go, which forfeits the catch-up and still leaves the recapture charge at sale, because recapture is computed on the depreciation that was allowable, not the depreciation that was taken.
The computation is the part that costs a CPA hours and costs us arithmetic: the basis is on your closing statement, the land split is in the assessor record, the recovery period is fixed, and the §481(a) number is the sum. So we price the computation at $99, the full packet with the ledger and the draft form sections at $249, and hand the CPA a workpaper to review instead of a blank page. The refund condition puts the method on the line: if your CPA documents an error in how we computed it, the money comes back.
What this is not
Operated by Reality Contact, LLC.
This is not tax, legal or financial advice.
The packet is a workpaper for your CPA. Your CPA reviews it, decides the method and the year of change, completes and signs Form 3115, and files it with your return. We do not file, sign, or represent you before the IRS or any state agency.
The land and building split is allocation support from the public assessor record under the IRS's reasonable-method rule. It is not an appraisal or a valuation.
No guarantee that the IRS accepts the change or the adjustment, and no dollar saving promised. The free figure is a rough estimate on stated assumptions.
Prices in USD. Refund conditions as stated.
Questions people ask
Can't I just amend the old returns?
Usually not for this. Once two or more returns have been filed without the depreciation, the IRS treats that as an adopted method of accounting, and an adopted method is changed on Form 3115, not by amending. The automatic change for depreciation has no user fee, and the §481(a) adjustment brings every missed year onto the current return. Your CPA confirms which route applies to your years; the packet is written for the 3115 route.
Why not just start depreciating this year and forget the past?
Because the recapture at sale is computed on the depreciation that was allowable, whether or not it was taken. Starting this year leaves the missed years as a deduction you never got and a recapture bill you still pay. The §481(a) adjustment is how the missed years come back.
What is a §481(a) adjustment, in plain terms?
It is the difference between what you would have deducted under the correct method and what you actually deducted, added up across all the years, and taken on the return for the year you change. For a rental that was never depreciated, that is the sum of the allowable depreciation for every year since it went into service, and the Form 3115 instructions say a negative adjustment like that is generally taken in one year.
Do you file the Form 3115?
No. Form 3115 is signed by the taxpayer and by the preparer, and it goes in with the return. We deliver the draft sections, the schedule and the adjustment as a workpaper; your CPA reviews, completes, signs and files. We do not represent you before the IRS.
I don't know how much of the price was land. What do you use?
The county assessor's record carries a land value and an improvement value for the parcel, and the ratio between them is a reasonable method the IRS accepts for the split (Pub. 551). The packet cross-checks that ratio against nearby land comps and shows both, as allocation support. It is not an appraisal.
The property was inherited. Is that different?
The basis is different: for inherited property it is generally the value at the date of death rather than a purchase price, so instead of a closing statement we ask for the estate or date-of-death value document. From there the schedule and the adjustment are built the same way.