Overview

Depreciation mistakes can change taxable income, tax owed, and future depreciation schedules. Common errors include wrong recovery periods, incorrect placed-in-service dates, misclassified property, or using the wrong depreciation method. Correcting them promptly reduces interest, penalties, and surprises at audit.

When do you file an amended return vs. Form 3115?

  • File an amended return (for example, Form 1040-X, 1120-X, 1065 amended filings) when the error is limited to a past-year calculation and you need to claim a refund or report additional tax for that year. Amending is the usual fix when the item was simply reported incorrectly on that return.
  • File Form 3115, “Application for Change in Accounting Method,” when the correction changes your method of accounting for depreciation (including a §481(a) adjustment that spreads the effect over years). The IRS provides automatic and non-automatic consent procedures for certain depreciation-related method changes (see the Form 3115 instructions).

(See the IRS guidance on Form 3115 and automatic consent procedures: https://www.irs.gov/forms-pubs/about-form-3115)

Step-by-step correction process

  1. Identify and quantify the error. Reconcile your fixed-asset register, invoices, and depreciation schedules. In my practice, a quick triage is to sort assets by year placed in service and recovery class to spot mismatches.
  2. Recalculate depreciation for the affected years using the correct cost basis, date placed in service, recovery period, and method (see Publication 946 for rules).
  3. Determine the remedy:
  • If the correction only affects a prior return and you can claim a refund or owe additional tax, prepare an amended return (1040-X, 1120-X, etc.) with a corrected Form 4562 attached if applicable.
  • If the correction affects your accounting method for depreciation, prepare Form 3115 to request a change and compute any §481(a) adjustment.
  1. Prepare supporting documentation: asset invoices, purchase agreements, fixed-asset registers, prior-year Form 4562s, and depreciation schedules.
  2. File. For amended returns, file within the applicable refund/assessment period (see “Timing and statute of limitations” below). For Form 3115, follow the filing instructions closely — some requests must be filed with the current-year return and others with the IRS centralized office.

(See IRS Publication 946: How To Depreciate Property: https://www.irs.gov/publications/p946 and Form 4562 details: https://finhelp.io/glossary/form-4562-depreciation-and-amortization/)

Timing and statute of limitations

  • General refund claims must be filed within three years of the original return date or within two years of the tax payment, whichever is later; substantial understatements can extend assessment periods. For specifics, review the IRS guidance on periods of limitations on assessments and refund claims (IRS Topic No. 152).
  • If you expect a refund from correcting an error, file the amended return promptly to preserve your claim.

(IRS period of limitations guidance: https://www.irs.gov/taxtopics/tc152)

Penalties, interest, and audit risk

  • If corrected depreciation reduces tax and produces a refund, penalties are unlikely; the issue is usually timing.
  • If the correction increases tax owed, expect interest and possibly late-payment penalties. Negligence or substantial understatement can add accuracy-related penalties.
  • Proper documentation and timely correction reduce audit risk and support penalty relief requests when appropriate.

Example (concise)

A manufacturer bought machinery for $100,000 and used a 3-year recovery period by mistake instead of the correct 5-year class life. Recalculate the depreciation for the affected years, attach a corrected Form 4562 to an amended return (or file Form 3115 if the correction is treated as a method change), and claim any refund or pay additional tax plus interest.

Documentation checklist

  • Original purchase invoices and proof of payment
  • Date placed-in-service records (contracts, delivery, installation)
  • Fixed-asset register and prior Form 4562s
  • Recalculated depreciation schedules showing year-by-year adjustments
  • Completed amended returns or Form 3115 and any required statements

Practical tips

  • Run periodic depreciation schedule reconciliations at least annually. Accounting software helps but confirm useful life and placed-in-service dates manually.
  • Use a qualified tax professional for Form 3115 filings—these can trigger multi-year §481 adjustments and procedural rules.
  • If you find many small errors, consider addressing them in a single amended return or a single Form 3115 where permitted.

Helpful FinHelp resources

Sources and authority

Professional disclaimer: This article is educational and not individualized tax advice. For your specific situation, consult a qualified tax advisor or CPA familiar with depreciation and accounting-method changes.