How to file Form 3115 for missed rental property depreciation since 2018?

Thanks so much for the helpful info! Just to make sure I understand - I can file my 2023 taxes normally before April 15th and include the proper depreciation just for 2023, and then worry about the Form 3115 for next year's taxes? That would be such a relief. One more question - when I file next year with Form 3115, will I get back all the extra tax I paid from 2018-2022 because I wasn't taking the depreciation deduction?

Yes, you've got it right! File your 2023 return normally by April 15th, but make sure you include the proper depreciation for 2023. This starts you on the correct path going forward. When you file Form 3115 with your 2024 return next year, you'll get what's called a "Section 481(a) adjustment" which is basically a catch-up deduction for all those missed years (2018-2022). This will appear as a single large deduction on your 2024 return rather than amending all your old returns. So you'll recover the tax benefit you should have received, just all at once on next year's return instead of spread across the previous years.

I'm interested but skeptical. How did it work with your actual tax filing? Did you still need a tax preparer to submit everything, or did the software help you file the forms directly?

Did it help you figure out the depreciation starting point? I have a similar situation but I'm not even sure what value to use - purchase price or something else? My property has been rented since 2019 and I've never taken depreciation.

I actually used the reports from taxr.ai to file myself using my regular tax software. It gave me exact numbers for each line on Form 3115 and explanations I could reference. The system walks you through taking the correct basis for depreciation (usually the lower of purchase price or fair market value when converted to rental, minus land value) and calculates everything year by year. For determining the starting basis, it asked for my purchase documents and HUD-1 statement, then helped separate the land value from the building value. It even showed me how to document everything properly in case of an audit. Honestly, it was much clearer than what my previous accountant tried to explain.

How does this service actually work? I'm confused how a third party can get you through to the IRS faster than calling directly.

Yeah right, nobody gets through to the IRS that quickly. I've literally spent hours on hold only to get disconnected. Are you sure this isn't just another scam trying to get desperate people's money?

The way it works is they use technology to navigate the IRS phone system and wait on hold for you. Once they get an agent on the line, they call you and connect you directly to that agent. It's basically like having someone else wait on hold instead of you. Totally get the skepticism - I felt the same way! But I was desperate after trying for days. What happened was I got a text when they reached an agent, then got connected immediately. The IRS person I spoke with was definitely a real agent who answered all my specific questions about Form 3115. I think they just have systems that can dial and navigate the phone menus more efficiently than a person sitting on hold.

Thanks for bringing this up! I was actually confused about that point - do I need to somehow determine what portion of my purchase price was for the land vs the building? The property cost $325,000 when we bought it in 2018 but I have no idea how to separate those values.

Yes, you absolutely need to separate the land value from the building value because land cannot be depreciated. There are a few ways to do this: Your property tax assessment should break down land vs. improvements (building) value. You can use this ratio and apply it to your purchase price. For example, if your tax assessment shows land is 20% of total value, then 20% of your $325,000 purchase price ($65,000) would be allocated to land, and the remaining $260,000 would be what you depreciate over 27.5 years. Another option is to check your closing documents or appraisal from when you purchased the property, as these sometimes include a land/building breakdown. Some people also use online resources like Zillow's estimated land value, though that's less official for IRS purposes.

Is there any advantage to filing amended returns instead? Like does one method get you more money back or is one safer from audit perspective?

Omg this is super helpful! I am using TurboTax and had no idea this option existed. Will this work for my situation where I've never taken depreciation at all (vs changing an existing depreciation method)?

This is such reassuring advice! I've been beating myself up about this mistake for weeks now. It's really helpful to hear that the IRS actually has systems in place for these situations and that I'm not the first person to miss this. Your suggestion about the spreadsheet is great - I definitely don't want to go through this stress again! Do you remember roughly how long the whole process took once you submitted your Form 3115? I'm curious about timing for when I might see the tax benefit from all those missed years. Also, did you end up needing any professional help, or were you able to handle it yourself with the resources people have mentioned here?

Thanks Philip! This is incredibly helpful coming from a professional perspective. I really appreciate you taking the time to reassure those of us who are stressed about this situation. Your point about the insurance declarations page is brilliant - I never would have thought to look there for help with the land/building value split. That could save me a lot of guesswork since I've been struggling to figure out how to separate those values from my original purchase. One quick question - when you mention major improvements qualifying for different depreciation schedules, are you talking about things that might depreciate faster than the 27.5 years? I did replace the HVAC system in 2020 and put in new flooring throughout in 2021, so I definitely have those receipts. Should those be handled separately on the Form 3115 or just included in the overall building depreciation? Also, do you typically recommend your clients handle the Form 3115 themselves or seek professional help? I'm trying to decide if I should attempt this on my own or bite the bullet and pay for professional assistance.

@fea4b2ce307f Yes, exactly! Those improvements you mentioned would qualify for accelerated depreciation schedules. HVAC systems typically depreciate over 5-7 years, and some flooring can be depreciated over 5-7 years as well (depending on the type). This is actually great news for you because you'll get much larger deductions in the earlier years compared to the 27.5-year building depreciation. For the Form 3115, you'll want to handle these as separate assets with their own depreciation schedules rather than lumping them into the building. The form has sections for multiple asset changes, so you'll be reporting the missed building depreciation AND the missed accelerated depreciation on these improvements. Regarding doing it yourself vs. professional help - Form 3115 can be tricky, especially when you have multiple asset categories like you do. Given that you have significant improvements that qualify for accelerated depreciation, the potential tax savings could be substantial. I'd honestly recommend getting professional help for this one, especially since the calculation errors on accelerated vs. straight-line depreciation can be complex. The cost of a professional will likely pay for itself in tax savings and peace of mind. You could also try some of the AI tax tools others mentioned to see if they can handle the multiple asset categories properly, but I'd double-check their work given the complexity of your situation.

@6450640afbb0 Great questions! Regarding the consistency issue - the IRS actually expects this kind of change when you're correcting a mistake. Starting proper depreciation on your 2023 return while having taken none previously won't trigger a flag by itself. The key is that you'll be documenting the correction with Form 3115 next year, which explains the entire situation to the IRS. Your HUD-1 statement should be perfect for establishing your property's basis - that's exactly the kind of documentation the IRS wants to see. It shows your actual purchase price and closing costs, which form the foundation for your depreciable basis. You might also want to keep your property deed and any inspection or appraisal reports from the purchase, but the HUD-1 is the primary document they'll look for. I'm also dealing with a rental property situation (though mine was missed maintenance vs depreciation), and what helped me was creating a simple timeline document showing: purchase date, purchase price from HUD-1, any improvements made, and what depreciation should have been taken each year. Having everything organized like that made conversations with professionals much more productive. You're definitely on the right track thinking about professional help for the Form 3115. Even just understanding the basics first (like you're doing here) will help you ask better questions and make sure you get good value from whatever professional you choose.

@001d91057593 Your step-by-step approach is exactly what I needed to see! Breaking it down like that makes this whole situation feel so much more manageable instead of this overwhelming mess I thought it was. I'm really glad you mentioned using the county property tax records online - I had no idea those detailed breakdowns existed either. I just looked up my property and you're right, they show the land vs improvement values clearly. That's going to save me a lot of guesswork and stress about getting the depreciation basis right. Your purchase price and situation sound very similar to mine, so it's really reassuring to see someone else working through the same process. The fact that you're feeling more confident about tackling this gives me hope that I can handle it too. One thing that's still making me a bit nervous - when you file your 2023 return with depreciation for the first time, are you planning to include any kind of note or explanation about the change? Or just file normally and let the Form 3115 next year handle all the explaining? Thanks for sharing your approach - it's exactly the kind of practical roadmap I was looking for!

@6bd0aac941de Thank you so much for sharing your experience! This is incredibly reassuring to hear from someone who actually went through the entire process successfully. The fact that you got that massive catch-up deduction must have been such a relief after all that stress. I'm really curious about the 15-20 hours you spent researching - what were the main resources you used besides this community? I want to make sure I'm prepared if I decide to tackle this myself rather than hiring a professional. Also, when you mention the Section 481(a) adjustment in Part IV - was that calculation straightforward once you had all your numbers, or was that the most complex part of the form? I've been trying to understand how exactly that catch-up deduction gets calculated and applied. One more question - you mentioned using tax software to complete Form 3115. Was this just regular tax prep software like TurboTax, or did you need something more specialized? I'm trying to figure out what tools I'll need to have ready when I tackle this next year. Your success story gives me a lot of confidence that this is manageable. The idea of getting back all those years of missed deductions in one big adjustment sounds like it'll make all this stress worth it!