Illustrative Look-Back Study
How a study on a building placed in service years ago feeds a Form 3115 and a §481(a) adjustment rather than amended returns. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Assumptions
- Educational information, not tax advice.
- Assume the taxpayer was using an impermissible method of treating all improvement cost as 39-year property.
- Eligibility for automatic consent, designated change numbers, and how any adjustment is spread are CPA determinations. Copy says “generally.”
- The 2022 Form 3115 instructions predate the 2025 change list. Rev. Proc. 2025-23 is the list cited here; a reviewer should confirm the current list on irs.gov before relying on a number.
- Any dollar figures below are invented for arithmetic only. They are not a typical mix and not a client result.
Key takeaways
- Look-back studies usually change method; they do not amend every old year.
- Rev. Proc. 2025-23 lists automatic change number 7 for impermissible-to-permissible depreciation — generally, and subject to CPA confirmation of the current list.
- Section 481(a) computes the catch-up so amounts are not duplicated or omitted. Filing decisions stay with the CPA (F-04).
- Missed bonus depreciation, if claimable at all, follows the original acquisition and placed-in-service dates. Do not apply 100% to 2018 acquisitions.
An office placed in service in 2018 was depreciated entirely as 39-year property. A 2026 study identifies supported 5- and 15-year components. The catch-up is typically a §481(a) adjustment on Form 3115, using the current list of automatic changes — designated change number 7 in Rev. Proc. 2025-23 for an impermissible-to-permissible depreciation change.
This illustration does not decide whether the taxpayer qualifies, whether a cut-off method applies, or how the adjustment is spread. Those are CPA questions. The 2022 Form 3115 instructions predate the 2025 change list.
Order of operations for a look-back is the same engineering sequence as a current-year study, plus a method-change overlay the CPA owns: land (if a purchase), building class, site work, personal-property candidates, records and inspection, reconciliation to original depreciable basis, then computation of allowed-or-allowable depreciation under the new classes through the year of change. The study identifies classes and remaining basis. It does not file Form 3115.
Bonus depreciation in a look-back
Whether missed bonus depreciation can be claimed depends on the year the property was acquired and placed in service. Use Notice 2026-11 and the acquisition-date pages; do not apply 100% to 2018 acquisitions. Public Law 119-21 restored 100% additional first-year depreciation for qualified property acquired after January 19, 2025. Property acquired after September 27, 2017 and before January 20, 2025 remains on the prior phase-down. An 2018 office’s original components were not acquired after January 19, 2025.
Later 2026 interior work on that office is a different placed-in-service date and a different acquisition analysis. Do not blend those years on one catch-up line.
What §481(a) is doing
Section 481(a) requires, when taxable income is computed under a different method than the prior year, adjustments necessary to prevent amounts from being duplicated or omitted. For a depreciation change, the adjustment is generally the difference between depreciation actually claimed through the start of the year of change and the depreciation that would have been claimed under the new method. Suppose, for arithmetic only, that difference is a negative $1. That invented $1 is not a typical catch-up and not a client result.
Rev. Proc. 2015-13 sets general procedures. Unless other guidance provides otherwise, a negative adjustment (which reduces taxable income) is taken in full in the year of change, and a positive adjustment is taken ratably over four years. Other limits — passive activity rules, taxable-income limitations — can still apply. The CPA computes them. This page does not.
Automatic changes and “generally”
Rev. Proc. 2025-23 lists automatic change number 7 for an impermissible-to-permissible depreciation change. A secondary source says the list was modified again in 2025–2026; that later modification is unverified here. Rev. Proc. 2026-32 exists as a modifier of Rev. Proc. 2025-23 in the source register. A reviewer should confirm the current designated change number on irs.gov before a return is filed. This illustration says “generally” and refers filing to the taxpayer’s CPA (F-04).
Not every depreciation change is automatic. Cut-off methods, missing books, and prior changes can take a taxpayer out of automatic consent. Do not treat this page as permission to file.
Engineering the historical file
The 2018 office likely lacks a complete construction file. The cost-estimate approach plus inspection applies. Reconcile component costs to original depreciable basis, not to 2026 fair market value. Allowed-or-allowable depreciation reduces basis even if it was not claimed; that is one reason a look-back is implemented through a method change rather than by pretending the old years can be silently rewritten.
If a written purchase allocation from 2018 exists, Peco Foods is a risk. If the taxpayer already componentized in a way that is a permissible method, a different study may not be an impermissible-to-permissible change. Those are legal questions for the CPA.
What the study delivers versus what the CPA files
The study delivers a classified schedule, remaining basis by class, and the documentation the ATG’s quality elements describe. The CPA prepares Form 3115, computes the §481(a) adjustment, and continues current-year depreciation on Form 4562 under the new method. CostSeg SI does not claim an operational method-change agent.
Educational information, not tax advice.
Sources
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