Owning a property for years does not lock you into the depreciation schedule you started with. A look-back cost segregation study reclassifies building components into 5, 7, and 15 year MACRS classes under the asset class rules in IRS Pub 946, and every dollar of depreciation you should have taken in prior years lands on your current return as a single catch-up deduction. No amended returns are involved.
How the look-back works
Once you have depreciated a building the same way on 2 or more consecutive returns, that treatment is an established accounting method under Reg. 1.446-1(e)(2)(ii)(d). Switching from an impermissible method, for example depreciating 5-year carpet and 15-year paving over 27.5 years, to the correct class lives is a change in accounting method that requires IRS consent under IRC section 446(e). The good news is that consent is automatic: the change is covered by the automatic procedures of Rev. Proc. 2015-13, so there is no user fee and no advance ruling. You attach Form 3115 to your timely filed return and mail a duplicate copy to the IRS in Ogden, Utah, following the Form 3115 instructions.
The catch-up itself is a section 481(a) adjustment: the difference between what you actually claimed and what you would have claimed had the correct classes applied from the original placed-in-service date. That computation includes bonus depreciation under IRC section 168(k) at the rate in effect for the year the property was first placed in service, which was 100% for placements from late 2017 through 2022.
Worked example: a fourplex owned since 2019
Say you bought a fourplex in March 2019 for $1,200,000, allocated $240,000 to land, and have depreciated the $960,000 building over 27.5 years ever since. A 2026 study reclassifies 25% of the basis, $240,000, into 5-year and 15-year property. Over 7 tax years the 27.5-year schedule produced roughly $59,000 of depreciation on that slice. Under the correct classes, 100% bonus in 2019 would have deducted the entire $240,000. The negative section 481(a) adjustment is about $181,000, deducted in full on your 2026 return under Rev. Proc. 2015-13.
When a look-back does not help
If you already sold the property, the window has closed; the method change has to happen while you still own it. If the building is land-heavy or the depreciable basis is small, the reclassified dollars may not justify study fees. And if your losses are passive and you have no passive income, real estate professional status, or short-term rental non-passive treatment, the catch-up deduction may suspend under the passive activity rules rather than cut this year's tax.
Amadae's cost segregation screen models the reclassification percentage and catch-up for a specific property before you commission anything. It is a screening estimate, not an engineering study; when the numbers justify it, Amadae coordinates the engineering study, prepares the Form 3115 and section 481(a) math, and files the return that uses it.