I forgot to depreciate my rental property for several years. How do I catch up?
If you missed depreciation on only one filed return, you can usually fix it with an amended return. If you missed it on two or more returns in a row, the IRS treats that as an accounting method, and the usual fix is Form 3115 filed with this year's return, which lets you deduct all the missed depreciation at once as a section 481(a) adjustment. Either way, catching up matters, because your basis drops by the depreciation you were allowed whether or not you took it.
Why skipping depreciation costs you twice
Publication 946 says you must reduce the basis of property by the depreciation "allowed or allowable, whichever is greater". Allowed is what you actually deducted. Allowable is what you were entitled to deduct. So if you never claimed depreciation, your basis still goes down as if you had (IRS Publication 946).
The result: you paid more tax in the years you skipped it, and when you sell, your gain is figured from the lower basis anyway. Catching up recovers the deductions you were owed.
Amended return or Form 3115: which fix applies
The answer turns on whether you have adopted a method of accounting. Publication 946 says you generally adopt a method by using the same impermissible method in two or more consecutively filed tax returns.
| Your situation | Usual fix |
|---|---|
| Missed depreciation on one filed return only | Amend that return. Publication 946 says an amended return is allowed when you have not adopted a method of accounting for the property. |
| Missed it on two or more returns in a row | File Form 3115 with the current return and claim the missed total as a section 481(a) adjustment. |
| The miss was a math or posting error | An amended return is allowed for that year. |
An amended return has its own deadline: Publication 946 says the later of 3 years from when you filed the original return or 2 years from when you paid the tax for that year.
The Form 3115 route, step by step
- Rebuild the depreciation schedule from the purchase: price, land value taken out, closing costs that add to basis, the month the building was ready and available for rent, and every improvement since.
- Figure the depreciation that was allowable for every year before this one, and what was actually deducted (often zero).
- The difference is the section 481(a) adjustment. Publication 946 says a negative adjustment, which lowers taxable income, is taken into account in the year of change and reported as other expenses.
- Complete Form 3115 for the automatic change from an impermissible to a permissible method of depreciation. The Form 3115 instructions list this as designated change number (DCN) 7, and say qualified small taxpayers may use a reduced filing requirement for it.
- Attach the original Form 3115 to your timely filed return for the year of change, and send a signed copy to the IRS at the address in the instructions (it may also be faxed) no later than the date you file the original.
- Claim this year's regular depreciation on Form 4562 as usual.
The Instructions for Form 3115 say no user fee is required for a Form 3115 filed under the automatic change procedures, and that a filer who complies with them is granted consent to the change, subject to IRS review.
A worked catch-up
Example a made-up 6 unit building was ready for rent in March 2023, with a building basis (no land) of $440,000. Full-year depreciation is $440,000 / 27.5 = $16,000. The owner claimed nothing on the 2023, 2024 and 2025 returns. Allowable: 2023 is 9.5 months under the mid-month convention, $16,000 x 9.5 / 12 = $12,667; 2024 is $16,000; 2025 is $16,000. Total missed: $44,667. On the 2026 return the owner files Form 3115 and deducts the $44,667 as a negative section 481(a) adjustment, plus the regular $16,000 for 2026, for $60,667 of depreciation-related deductions on that return.
A large deduction in one year can run into the passive activity rules, so some of it may carry forward instead of reducing other income. Your tax preparer will run that part; the rental loss guide explains the limits.
How to keep it from happening again
- Book the building, the land and every improvement as separate assets the month you buy or place them in service.
- Post depreciation in the books each year, not only on the return, so a property's profit and loss always shows it.
- Keep the closing statement, the land value source and improvement invoices for as long as you own the building, plus the years after a sale.
- Check that the depreciation line on last year's Schedule E matches your schedule before the next return goes out.
Where DoorKeeping fits
DoorKeeping keeps one set of books per property, with expense accounts mapped to Schedule E lines, including depreciation on line 18, and produces the Schedule E report from those books. Because the building, land and improvements can live in separate accounts with their documents, a missing depreciation line shows up as a gap in the report, not as a surprise at sale. DoorKeeping does not file Form 3115 or give tax advice; your tax preparer does that part.
Sources
- IRS, Publication 946, How To Depreciate Property (2025), read Oct 30, 2026
- IRS, Instructions for Form 3115, read Oct 30, 2026
Questions
- Can I just start depreciating this year and skip the past years?
- You can start, but the missed years still reduce your basis because the IRS uses allowed or allowable depreciation, whichever is greater. Form 3115 lets you deduct the missed amount instead of losing it.
- Do I have to amend every prior return?
- Usually not. Once the same method is used on two or more consecutive returns, the fix is generally a Form 3115 with the current return, which catches up the total in one year.
- Is there an IRS fee for Form 3115?
- The Form 3115 instructions say no user fee is required for a change filed under the automatic change procedures.