Why it is a method change, not an error
An error is a mistake in applying a correct method — a transposed number, a missed asset. Errors are corrected by amending.
A method of accounting is a consistent treatment of an item. Using an impermissible recovery period on two or more consecutive returns establishes a method, and methods are corrected prospectively through a change in method rather than by amending.
Depreciation is explicitly treated this way, which is the entire reason look-back studies work.
The section 481(a) adjustment
When you change methods, section 481(a) requires a computation preventing amounts from being duplicated or omitted: the cumulative difference between depreciation actually claimed and depreciation that would have been claimed under the correct method from the beginning.
A negative adjustment — additional deductions, the taxpayer-favourable direction — is taken entirely in the year of change. A positive adjustment is generally spread over four years. Cost segregation look-backs almost always produce the favourable kind.
A worked example
An owner bought a $2.4 million retail building in 2016 and put $1.9 million of building basis on a 39-year schedule. By 2026 they have claimed roughly $487,000.
A study finds $520,000 belongs in 5 and 7-year classes and $340,000 in 15-year land improvements. Recomputed from 2016 applying the bonus rules as they stood in each year, cumulative depreciation should have been roughly $1,140,000.
The section 481(a) adjustment is approximately $653,000, deductible in full on the 2026 return.
Automatic consent
Changing from an impermissible to a permissible method of depreciation is generally an automatic change, commonly designated change number 7 on the automatic changes list. No advance consent, no user fee.
Form 3115 is filed with a timely-filed original return including extensions, with a copy sent separately as the governing revenue procedure directs. Both filings matter; missing the separate copy is a common and avoidable problem.
What we prepare
The study establishing correct classification as of the placed-in-service date, the year-by-year recomputation, the 481(a) schedule, the completed Form 3115 with required statements and the change number, filing instructions for both copies, and direct support for your preparer through filing.
The hard boundary
You must still own the property. Sell it and the schedule closes and the opportunity closes with it. There is no retroactive study on a disposed asset.
Book a feasibility call Send us the property