Missed Depreciation on Rental Property: Form 3115 or 1040-X

Can I still claim depreciation on my rental for previous years?

Often, yes. Missed years can generally be recovered, by an amended return or by Form 3115 (Publication 527; Publication 946). One filed return with the error is generally fixed by an amended return (Form 1040-X); two or more filed returns in a row usually need Form 3115.

Years too old for an amended refund claim are not necessarily lost. Form 3115 takes the depreciation allowable for all earlier years, open and closed, as one deduction in the year of change (Rev. Proc. 2025-23, section 6.01).

The case is not simple when two or more filed returns skipped depreciation, the rental was sold or may be sold, you own several rentals, a past preparer's error may reach other lines, or an IRS notice is open. Gather these first:

• Every filed return since the rental began, with Schedule E and any Form 4562
• The purchase closing statement and the property tax bill that splits land from building
• The date the rental was first ready to rent, and any months it was your home or used personally
• Dates and receipts for improvements, appliances and furniture
• The sale closing statement, if the rental was sold

If I never took it, did I lose it, and does my basis still go down?

Basis still goes down. You must reduce a property's basis by the full depreciation you could have deducted, even if you deducted none (Publication 551; Publication 527).

You have not necessarily lost the deduction, but each route to claim it has its own deadline. What you cannot avoid is the basis cut.

Do I amend my returns or file Form 3115?

An amended return fixes one filed return with the error; a Form 3115 fixes two or more. A depreciation method is adopted by using the same wrong treatment, including claiming nothing, on two or more consecutively filed returns, and a method can be changed only with IRS approval (Publication 946).

A math or posting error in any year is also corrected by an amended return (Publication 946). The automatic Form 3115 route needs the wrong treatment in at least the two years just before the year of change, so if you began depreciating correctly later without recovering the earlier years, have the filed schedules reviewed first (Rev. Proc. 2025-23, section 6.01).

Some late elections need no letter ruling: after a timely original return, an election out of bonus depreciation can still be made on an amended return filed within 6 months of the due date, extensions not counted (Publication 946).

A Form 1040-X claiming a refund generally must be filed within 3 years after filing the original return or 2 years after paying the tax, whichever is later (Form 1040-X instructions). Form 3115 is not held to that window.

Can I just deduct all the missed years on this year's Schedule E?

Not on your own. Switching from claiming nothing to claiming the correct amount is a change in accounting method, and the IRS generally requires its approval through Form 3115 (Publication 946). Starting to depreciate at the right rate from now on leaves the missed years unclaimed.

How does Form 3115 work for missed rental depreciation?

An eligible Form 3115 for missed depreciation is an automatic change: no user fee, no IRS acknowledgement, and consent is granted when the form is filed on time and the rules are met, subject to IRS review later. It takes every missed year as one deduction on a single return, the year of change (Form 3115 instructions; Rev. Proc. 2025-23, section 6.01).

1. The year of change is the tax year whose original return carries the form, so it is generally a year whose return is not yet filed. For a calendar-year landlord whose last-year return is filed, that is usually the current year, filed next season. If last year's return was filed on time without the form, an amended return carrying it may still qualify when filed within 6 months of the return's due date, extensions not counted, with a statement that it is filed under section 301.9100-2(b) (Rev. Proc. 2015-13, section 6.03(4)).
2. Figure the catch-up. It is the depreciation allowable for all earlier years, open and closed, less any depreciation actually deducted. If nothing was deducted, it is the full allowable total. The IRS calls this the section 481(a) adjustment (Publication 946).
3. Attach the original Form 3115 to that year's return, filed on time, extensions included. The attached original does not need a signature.
4. Send a signed copy to the IRS at Ogden, Utah, no earlier than the first day of the year of change and no later than the day the return is filed (Form 3115 instructions).
5. Deduct the full catch-up in the year of change. A negative adjustment lowers income that year, all at once (Publication 946).

More rules matter:

• Statements. The form needs statements of the adjustment with its computation, the old and new methods, and each item's placed-in-service year (Form 3115 instructions; Rev. Proc. 2025-23, section 6.01).
• Deadlines and elections. A missed Form 3115 deadline is hard to fix: outside the automatic extension in step 1, relief takes unusual and compelling circumstances (Form 3115 instructions). The form cannot make or revoke an election, such as an election out of bonus depreciation (Rev. Proc. 2025-23, section 6.01).
• Earlier changes. A method change for the same item made or requested in the five years ending with the year of change can bar the automatic route, so ask the old preparer whether a Form 3115 was ever filed (Rev. Proc. 2015-13, section 5.05).

How do I figure the catch-up amount?

The catch-up is each earlier year's allowable depreciation, added together, minus what was actually deducted. Each year's allowable amount is the depreciable basis times that year's rate, so the inputs below decide the answer (Publication 527; Publication 946).

The year of change still takes its own depreciation as usual. The catch-up covers only earlier years. For purchase costs and the land split, see entering a rental closing statement in the books. To tell a repair from an improvement, see repair or improvement.

What if I sold the rental, or sell it this year?

A sold rental may still be corrected. Rev. Proc. 2025-23 has a separate change for depreciable property that was disposed of, with the sale year as the year of change (section 6.07).

• Timing. The whole adjustment is taken in the sale year.
• Where it is filed. Attach Form 3115 to a timely original return for the sale year. Otherwise attach it to an amended sale-year return filed before the IRS's time to assess tax for that year ends. That amended return must include the knock-on changes, such as to the gain.
• Refunds. A refund claim on that amended return still faces the usual deadline of 3 years after filing the original return or 2 years after paying the tax, whichever is later (IRS: time you can claim a credit or refund).
• Exchanges. The change does not apply to a sale in a like-kind exchange or other nonrecognition transaction, apart from a narrow exception. See 1031 exchanges and other sale planning.

Do I owe depreciation recapture on a sale even though I never claimed it?

Skipping the deduction does not skip the tax. Basis falls by depreciation allowable, so the gain is larger by the amount you never claimed (Publication 551). For a rental held more than one year, the part of the gain due to depreciation on real property is unrecaptured section 1250 gain, taxed at up to 25% (Publication 544). Gain on a rental held one year or less is generally taxed at ordinary rates. If the rental was your home first and the home-sale exclusion applies, the exclusion still does not cover gain equal to depreciation allowed or allowable for periods after May 6, 1997 (Publication 523; see selling your home).

Claiming the missed depreciation does not shrink the gain. It adds a deduction, which is the only thing skipping depreciation loses. A sale-year deduction generally reduces income taxed at ordinary rates, while the depreciation part of the gain is taxed at up to 25%, so the two can be taxed at different rates (Publication 946; Publication 544). Whether that cuts the year's tax depends on the rest of the return and on the passive loss limits.

For forms, rates, and the rules for appliances, furniture, bonus depreciation and earlier section 1231 losses on a sale, see selling a rental and depreciation recapture.

What if my old preparer or software missed it?

The cause does not change the rule or the fix: the choice between an amended return and Form 3115 depends on what the filed returns show, not on why depreciation was left out.

Check how the old file set the property up. A building entered as land instead of depreciable property is listed as an accounting method change too (Publication 946). Get copies of the filed returns, not only transcripts, and ask the old preparer for the depreciation report. See rebuilding a missing depreciation schedule.

Does a passive loss limit change when I get the benefit?

It can. The catch-up is a rental deduction in the year of change, and most rental losses are passive, so a loss it creates may not be usable that year. The unused loss carries forward. It is allowed against passive income, against the special allowance below, or when you sell your entire interest in a fully taxable transaction to an unrelated person (Form 8582 instructions).

The special allowance is up to $25,000 of rental loss for an active participant. It phases out as modified adjusted gross income (adjusted gross income figured without certain items) runs from $100,000 to $150,000. Married filing separately, lower limits apply, and there is no allowance if you lived with your spouse at any time in the year (Publication 925).

An amended earlier year can change the loss carried into later years, so later returns may need review too. For the basics, see US rental income and deductions.

What else should be checked when depreciation was missed?

Check other properties, other items and state returns. Each can change the Form 3115 or the amended return.

• Other rentals and items. Check every rental the same preparer or software handled, and every improvement, appliance and piece of furniture. Changes for several assets in the same year generally go on one Form 3115 with one net adjustment (Rev. Proc. 2025-23, section 6.01). Whether several properties need more than one form can depend on whether they are separate trades or businesses (Form 3115 instructions).
• Items deducted as repairs. An item deducted in full was not skipped, and capitalizing it is a separate method change, not part of this catch-up (Rev. Proc. 2025-23, section 6.01).
• State returns. Some states do not follow every federal depreciation rule and require their own adjustment. California, for example, uses form FTB 3885A (FTB Publication 1001). Check each state return the change touches.
• An open exam. Form 3115 asks whether the filer is under examination, and a copy goes to the examiner if so (Form 3115 instructions).

Example

These examples are illustrative and use US dollars.

Seven years missed, still renting

A rental is bought for $300,000 and placed in service in February of year 1. The tax bill puts 20% of the value on land, so the building is $240,000. The seven returns for years 1 to 7 claim no depreciation. Table 2-2d gives 3.182% for the first year and 3.636% for each later year.

• Year 1: $240,000 × 3.182% = about $7,637
• Years 2 to 7: $240,000 × 3.636% = about $8,726 a year, or $52,358 in all
• Allowable total: about $60,000

Seven consecutive returns means a method was adopted, so the usual route is a Form 3115. Filed with the year 8 return, it takes about $60,000 as one deduction, and year 8 takes its own depreciation of about $8,726 as usual. The building's basis was already about $60,000 lower.

One return, first year only

The same $240,000 building is placed in service in May of last year. Last year's return shows no depreciation, and this year's return is not filed. Only one return is wrong, so no method has been adopted. A Form 1040-X for last year, filed before this year's return and within the refund deadline, claims 2.273% × $240,000, about $5,455. A Form 3115 on this year's return would also work.

Sold this year

The rental from the first example sells in year 8 for $400,000. Ignore selling costs and year 8's own depreciation; assume the building holds at least $60,000 of the gain and no earlier net section 1231 losses. Basis is $300,000 less $60,000 allowable, or $240,000, so the gain is $160,000 whether or not the depreciation was claimed. $60,000 of it is unrecaptured section 1250 gain, taxed at up to 25%. A Form 3115 for the sale year adds a deduction of about $60,000 on top. Skipping it keeps the same gain and loses the deduction.

Different for you?

• Two or more filed returns skipped depreciation, or the rental is sold or about to be: whether to amend or file Form 3115, the catch-up amount and the sale-year timing depend on each year's filing and the property's records. See individual tax help.
• You own several rentals, an old preparer's error may reach other lines, or an IRS notice or exam is open: the fix may touch more than depreciation. See individual tax help.
• Your rental books are years behind, or the depreciation history is missing: the catch-up needs a rebuilt asset list first. See catching up on rental property books, rebuilding a missing depreciation schedule and bookkeeping help.
• The rental is held in a partnership, a multi-owner LLC or a corporation: that entity files the return carrying the depreciation, not you. Direct co-owners generally each report their share on Schedule E, since co-ownership alone is not a partnership unless they provide services to the tenants (Publication 541). A one-owner LLC is generally reported on your own Schedule E, and this page applies to it (IRS: single member LLCs). See rental property in an LLC and co-owned rental returns.
• You are a nonresident alien owner, or no return was filed for the rental years: a nonresident alien generally can claim rental deductions only after choosing to be taxed on net rental income (Publication 519), and years with no return are not covered here. See US rental owned from abroad, catching up on unfiled returns and cross-border tax help.
• You are selling and weighing a 1031 exchange: see like-kind exchange and sale planning.
• You filed an amended return and are waiting: see amended return status and timing.