Form 3115, Application for Change in Accounting Method, is the IRS filing that lets a property owner adopt the shorter recovery periods a cost segregation study identifies without amending a single prior return. Depreciation is an accounting method: once you have reported a building the same way on 2 or more consecutive returns, Reg. 1.446-1(e)(2)(ii)(d) treats that as your established method, and IRC section 446(e) requires IRS consent to change it. Form 3115 is how you get that consent.
Why automatic consent matters
Correcting depreciation from impermissible class lives to the proper MACRS classes in IRS Pub 946 is on the IRS list of automatic changes (designated change number 7) under Rev. Proc. 2015-13. Automatic means:
- No user fee and no waiting on an IRS ruling.
- The original Form 3115 attaches to your timely filed return for the year of change, including extensions, and a duplicate copy goes to the IRS in Ogden, Utah, per the Form 3115 instructions.
- Consent is granted by following the procedure; the return and the 3115 travel together.
The form reports the old and new methods, the designated change number, and the section 481(a) adjustment: the cumulative difference between depreciation claimed and depreciation the new method would have allowed from the placed-in-service date. A negative adjustment, the usual result after a cost segregation study, is deducted in full in the year of change; a positive adjustment is spread over 4 years under Rev. Proc. 2015-13.
Worked example: a strip center owned since 2021
An investor bought a retail strip center in September 2021 for $1,500,000 with $1,200,000 of depreciable basis on a 39-year schedule. A 2026 engineering study reclassifies 22%, or $264,000, into 5-year and 15-year property. The 39-year schedule, with the mid-month convention giving 2021 a partial year, claimed roughly $29,000 on that slice through 2025. Because the property was placed in service in 2021, when bonus depreciation under IRC section 168(k) was 100%, the proper method would have deducted the full $264,000 in year one. Form 3115 reports a negative section 481(a) adjustment of about $235,000, which lands as a deduction on the 2026 return.
Who prepares it
The engineering study supplies the asset-by-asset detail; the tax preparer converts it into the Form 3115 schedules and the 481(a) computation and files it with the return. This is where examiners look first: the IRS Cost Segregation Audit Techniques Guide directs agents to verify that method changes followed the consent procedures and that the adjustment ties to the depreciation history.
When Form 3115 is not the tool
If only one return has been filed since the property went into service, there is no established method yet; you fix the error by amending that return instead. And Form 3115 does nothing for a property you have already sold.
Amadae prepares the Form 3115 and section 481(a) catch-up math when a look-back applies and files the return that uses the study. The study itself comes from an engineering firm; Amadae screens the property first and coordinates that work.