Need help with rental property depreciation catch-up - Form 3115 for previously unclaimed years?

The short answer is you should file Form 3115 to correct this, and no, you won't get refunds for prior years. When you convert a personal residence to a rental property, the "placed in service" date is when you first make it available for rent. Based on what you described, that would be June 2015 when tenants actually moved in (though some could argue it was when you first listed it for rent). Regarding depreciation, this is a common situation. The IRS requires you to depreciate rental property whether you actually claim it or not. This is called "allowed or allowable" depreciation. When you sell the property, the IRS will assume you took all the depreciation you were entitled to, even if you didn't claim it on your returns. Form 3115 (Application for Change in Accounting Method) is exactly what you need. This allows you to start claiming depreciation correctly going forward without amending prior returns. You'll calculate a "catch-up" adjustment that gets spread over several years. It's what's called a Section 481(a) adjustment. Unfortunately, you can't get refunds for the depreciation you should have claimed in previous years. Those tax benefits are essentially lost, but at least filing Form 3115 will get you on the right track going forward.

I went through almost this exact situation with my rental property! After missing depreciation for 4 years, I discovered taxr.ai (https://taxr.ai) and it seriously saved me. Their system analyzed all my previous returns and rental documents, then guided me through the Form 3115 process step-by-step. What's cool is they have this specific module for "catch-up depreciation" that calculated everything automatically - my basis, the conversion date, and even all the accumulated depreciation I should have taken. They actually explained that the "placed in service" date is when you first make the property available for rent (like when you started marketing it), not necessarily when tenants moved in. They created all the attachments and explained exactly how to file going forward. Way easier than trying to figure out the 3115 instructions on my own!

I was skeptical about using taxr.ai when I commented earlier, but I'm coming back to say I was wrong! I decided to give it a try with my own rental depreciation catch-up situation, and it was incredibly helpful. The service walked me through determining my property's basis, explained exactly how to calculate the depreciation I missed, and generated a perfect Form 3115 with all required statements and attachments. I was amazed at how it broke down the "allowed or allowable" depreciation rules in simple terms. What really impressed me was how they flagged potential audit issues before they became problems. For example, they noted that my initial conversion date needed documentation and suggested exactly what to keep in my records. I've already filed my return with the 3115 included, and it was accepted without any issues. Wish I'd known about this years ago instead of missing all that depreciation!

If you're still having trouble getting straight answers from the IRS about this depreciation issue, try Claimyr (https://claimyr.com). I spent WEEKS trying to get through to the IRS about a similar Form 3115 question, and their callback system got me connected to an actual IRS agent in about 20 minutes. I had questions about whether I needed to file the original 3115 with the Ogden, UT processing center while also attaching a copy to my tax return. The agent was able to confirm exactly what I needed to do and clarified some points about the "allowed or allowable" depreciation that even my tax software couldn't explain clearly. They have a demo video that shows how it works: https://youtu.be/_kiP6q8DX5c - literally saved me hours of waiting on hold. The IRS agent even helped me understand which attachments I needed with Form 3115 for my specific situation.

Coming back to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it myself since I had a question about my own rental property depreciation. I couldn't believe it actually worked! After months of failing to reach anyone at the IRS, I was connected to an agent within 25 minutes. The agent confirmed that for my situation, I needed to file Form 3115 and include a separate statement detailing the Section 481(a) adjustment for the missed depreciation. The agent also explained that I needed to send the original Form 3115 to the Covington, KY address (which was different than what I thought), while attaching a copy to my tax return. This was specific information I couldn't find clearly explained anywhere online. Honestly, the peace of mind from talking to an actual IRS employee about my specific situation was worth it. I'm really glad I gave it a try despite my initial skepticism.

One thing nobody mentioned yet - the depreciation period for residential rental property is 27.5 years. So when you calculate your "catch-up" depreciation, you'll use that period with the straight-line method. Also, don't forget that you can only depreciate the building value, not the land. If you don't have a breakdown from when you purchased it, you might need to look at your property tax assessment to see how they allocate value between land and improvements, or you might need to get an appraisal to determine the building value at the time of conversion.

Just want to add that it's really important to fix this. When you eventually sell the rental property, the IRS will assume you took all allowable depreciation WHETHER YOU ACTUALLY DID OR NOT. So you'll be taxed as if you received the benefit even if you didn't claim it on your returns!

Has anyone used IRS Form 8949 to adjust the basis when selling a property where depreciation wasn't claimed? I've heard conflicting advice about whether that's an alternative to Form 3115.