Look-Back Studies

The §481(a) adjustment

Instead of amending each prior return, the difference between the depreciation claimed and the depreciation that would have been claimed under the new method is taken as a single §481(a) adjustment. Under Rev. Proc. 2015-13, a negative adjustment (one that reduces income) is generally taken in full in the year of change, and a positive adjustment is generally spread over four years.

A typical cost-segregation look-back produces a negative adjustment: the new classes would have allowed more depreciation in the closed years, so the catch-up reduces income now. A change that reduces prior depreciation would be positive and is generally taken ratably over four years.

Section 481(b) has a three-year allocation limit where the adjustment exceeds $3,000. That statute can interact with the revenue-procedure spread. Your CPA applies the rule that fits the adjustment.

What the study looks back to

Each component is classified as of the original placed-in-service date, using the law in effect then. Bonus depreciation rates depend on when the property was acquired and placed in service, not on the year of the study. A property placed in service in 2022 does not become eligible for the 100% rate available to property acquired after January 19, 2025.

Pre-2018 interior work used the older leasehold, restaurant, and retail improvement categories, not today’s qualified improvement property definition. QIP’s 15-year treatment, as corrected by the CARES Act, applies to QIP placed in service after December 31, 2017.

The open question in the research register is how a look-back of pre-January 20, 2025 property should describe the bonus rate: it follows the original dates, not the year of the method change. This article follows that original-date rule.

Points to check with your CPA

Whether an amended return or Form 3115 is the right tool depends on how many returns used the earlier treatment. State conformity, passive activity limits, and the remaining holding period all affect whether a look-back is worthwhile.

A method is generally adopted once an impermissible treatment has been used on two consecutively filed returns. Changing it after that requires consent. A property placed in service in the current year and not yet returned does not need this path.

California does not conform to §168(k). A federal catch-up that includes bonus depreciation can look different on the state return. Do not assume other states’ positions without that state’s official page.

What the audit guide adds

Publication 5653 lists change in accounting method among the related aspects a quality study should consider. The guide is examiner guidance, not the consent procedure. Rev. Proc. 2015-13 and the current automatic-change list are the procedure.

The February 2025 revision of the guide predates Public Law 119-21. Its bonus discussion is not current. Use Notice 2026-11 and the statute for rates and dates. A look-back report that reprints the guide’s older bonus table as if it were today’s law will misstate the rate for property acquired after January 19, 2025 — and will also misstate the phase-down if it ignores the original acquisition date of older property.

Current automatic-change list

As of October 16, 2026, Rev. Proc. 2025-23 is the current list, modified by Rev. Proc. 2025-28 and Rev. Proc. 2026-32. Rev. Proc. 2026-32 applies to Forms 3115 filed after September 4, 2026.

Designated change numbers can move in a successor list. Copy that says “generally” and leaves the DCN choice to the CPA is the safe wording. This page does not file the form.