§481(a) — Accounting Method Adjustments
When a taxpayer changes an accounting method, §481(a) requires a catch-up adjustment so nothing is counted twice or missed. Look-back cost segregation is usually claimed that way, not by amending every prior return. Filing decisions belong to the taxpayer’s CPA.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- The §481(a) adjustment is the cumulative difference between the old and new methods at the start of the year of change.
- Under Rev. Proc. 2015-13, a negative adjustment is generally taken in one year; a positive one over four years.
- For depreciation changes, the adjustment captures missed depreciation without amending prior returns.
- Filing a Form 3115, and choosing a designated change number, is a CPA decision under Rev. Proc. 2025-23 as modified.
- Bonus rates in the adjustment follow the original acquisition and placed-in-service dates, not the year of the study.
Section 481(a) requires, when a taxpayer’s 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 the difference between the depreciation actually claimed through the start of the year of change and the depreciation that would have been claimed under the new method.
The statute itself does not set a four-year spread. It requires the adjustment and, in §481(b), limits the tax on a substantial positive adjustment in specified cases. If the method being left was used in the two years before the year of change and the increase in taxable income from the adjustment exceeds $3,000, the tax attributable to that increase cannot exceed the tax that would result if one-third of the increase were included in each of the year of change and the two preceding years, or under an alternative allocation the taxpayer can establish.
Rev. Proc. 2015-13 sets the general procedures for automatic and non-automatic consent. 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: the year of change and the next three. Those spread periods are procedural, not a rewrite of §481(a).
A look-back cost segregation study on a building already being depreciated as a single 27.5- or 39-year asset is generally implemented as a change from an impermissible to a permissible method of depreciation, not as a stack of amended returns. Whether that change qualifies for automatic consent, and which designated change number applies, are questions under Rev. Proc. 2025-23 as modified by later lists, including Rev. Proc. 2026-32. Filing decisions belong to the taxpayer’s CPA.
This page is educational information, not tax advice. The Form 3115 instructions current revision is December 2022. Change numbers on this page are tied to Rev. Proc. 2025-23 and can change when the IRS issues a successor list.
Cost segregation example in words
Suppose a building was placed in service several years ago and depreciated entirely as 39-year property. A study now identifies 5-year and 15-year components. The extra depreciation those components would have produced in the prior years becomes a negative §481(a) adjustment, generally deducted in the year of change, and future depreciation follows the new classes.
The adjustment does not rewrite history on the original returns. It brings the cumulative difference into the year of change. Going forward, each component uses its assigned method, period, and convention.
If the study instead reduces previously claimed short-life depreciation — for example, after an examiner adjustment — the adjustment can be positive. A positive adjustment is generally spread over four years under Rev. Proc. 2015-13, subject to other applicable guidance.
Bonus depreciation inside the adjustment
Bonus depreciation in the adjustment depends on the original acquisition and placed-in-service dates, not on the year the study is completed. A component of a building acquired under a 2019 contract does not become eligible for the 100 percent rate available, as of October 16, 2026, to property acquired after January 19, 2025.
The rate that would have applied in the original year is the rate that belongs in the catch-up computation. Mixing a current-year 100 percent rate into a look-back adjustment for earlier acquisitions would misstate the law.
How that computation is scheduled on Form 3115 is a CPA task. This page does not provide a worksheet.
Limits and judgment
Whether a change qualifies for automatic consent, which designated change number applies, and how the adjustment interacts with other limits, such as passive activity rules, are questions for the taxpayer’s CPA. This page lists the framework, not eligibility for any reader.
Under Rev. Proc. 2025-23, DCN 7 is the contact-list title for an impermissible-to-permissible depreciation change. DCN 8 is permissible-to-permissible. Other DCNs cover dispositions and qualified improvement property. Titles are not a complete eligibility checklist.
Section 481(c) allows the Secretary to prescribe how adjustments are taken into account. The current automatic procedures sit in that space. A new annual list can supersede Rev. Proc. 2025-23. Confirm the current list on irs.gov before filing.
What a study does not do
A study that only reclassifies property placed in service in the current year, and not yet reported, is a classification on the first Form 4562. That is not a method change and does not produce a §481(a) adjustment.
A study does not amend prior-year bonus elections or create a current §179 election for old basis. Those are separate elections with their own years.
CostSeg SI’s Super Intelligence workflow, as proposed, would organize the component list and the dates a CPA needs. It is not an operational claim that any agent files Form 3115 or computes the adjustment.
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