Form 3115 — Glossary — IRS Depreciation Rules

Form 3115

IRS Application for Change in Accounting Method. The form a taxpayer files to change a method of accounting — including depreciation method changes following a cost segregation study on a previously-acquired property. Automatic consent procedures for most depreciation method changes are published in Rev. Proc. 2015-13 and subsequent updates.

STATUTE BASIS · IRC §446(e) · IRC §481(a) · Rev. Proc. 2015-13

In context

A depreciation method that has been used on two or more consecutive tax returns is an established method of accounting (Treas. Reg. §1.446-1(e)(2)(ii)(d)). Switching from the established method — for example, reclassifying components of a building from 27.5- or 39-year property to 5-, 7-, or 15-year property after a cost segregation study — is a change in accounting method requiring IRS consent under IRC §446(e).

Form 3115 is the consent-application form. Most depreciation method changes are eligible for automatic consent under Rev. Proc. 2015-13, which means the IRS’s consent is granted at filing without a private letter ruling. The relevant Designated Change Number (DCN) for impermissible-to-permissible depreciation method changes is DCN 7.

The catch-up adjustment is calculated under §481(a) — the cumulative difference between depreciation actually claimed under the old method and depreciation that would have been claimed under the new method. Negative §481(a) adjustments (additional depreciation) are taken fully in the year of change.

See /form-3115/ for the full topic hub.