Overview

Discovering a depreciation error can change tax owed for one or several prior years. Typical mistakes include using the wrong recovery period, applying the wrong convention, forgetting an asset, or misapplying Section 179 or bonus depreciation. Handling the correction correctly matters: it affects refunds, future depreciation, and potential recapture on sale.

This article explains when to file an amended return, when to use a change-in-method filing instead, the documents to prepare, how to calculate corrected depreciation, and practical tips from my 15+ years in tax preparation and planning.

Authoritative references used in this guide include IRS Publication 946 (How To Depreciate Property), IRS Form 1040X guidance, and Form 4562 instructions (IRS).

(IRS sources: Publication 946; Form 1040X; Form 4562.)

When to amend a return versus other correction methods

  • File an amended return (Form 1040X for individuals; Form 1120X for C corporations; corrected partnership returns and K-1s for partnerships) when you need to change tax liability or claim a refund for prior-year depreciation mistakes that fall within the statute of limitations.
  • Use Form 3115 (Application for Change in Accounting Method) when the correction involves the method you used to depreciate assets across tax years. A properly prepared 3115 can produce a Section 481(a) adjustment that corrects prior years without amending each return.

Which path is right depends on the issue:

  • Simple arithmetic errors, omitted assets, or wrong depreciation entries for a single year: amend that year.
  • Systemic method errors (e.g., you used straight-line when MACRS should have been used for a class of assets consistently): consider Form 3115.

Because Form 3115 procedures and automatic change rules are technical, I recommend consulting a CPA if the error affects multiple years or asset classes (IRS guidance on Form 3115 explains automatic vs. non-automatic methods).

Step-by-step process to file an amended return for depreciation errors

  1. Identify the exact error and list affected tax years
  • Was depreciation overclaimed or underclaimed?
  • Which assets and which tax years are affected?
  • Did the mistake also affect cost basis, gains/losses, or passive activity limits?
  1. Recompute corrected depreciation
  • Recalculate each year’s depreciation using the correct method (MACRS tables, recovery period, convention), and prepare a corrected Form 4562 for each affected year. IRS Publication 946 explains MACRS and conventions (see IRS Pub. 946).
  • If you claimed Section 179 or bonus depreciation incorrectly, recompute those elections. If a Section 179 election was missed and you are within the refund statute, you may be able to amend to claim it.
  1. Choose the filing vehicle
  • Individual taxpayers: use Form 1040X to amend Form 1040/1040-SR. Attach corrected schedules and the corrected Form 4562 for the year(s) involved.
  • C corporations: use Form 1120X.
  • S corporations/partnerships: file corrected returns and issue corrected Schedules K-1 to owners/partners.
  • For method changes that alter multiple years, discuss Form 3115 with your advisor.
  1. Prepare supporting documentation
  • Include a clear explanation of the error and the computations showing “before” and “after” tax figures.
  • Attach revised Form 4562, depreciation schedules, invoices, placed-in-service dates, and any corrected K-1s.
  • If you are claiming a refund, provide proof of payments and any other documentation that supports the corrected tax.
  1. Respect the statute of limitations
  • To claim a refund, you generally must file within three years from the date you filed the original return or within two years from the date you paid the tax, whichever is later (IRS timing rules). If the period has expired you may not be able to amend for a refund, though other remedies (Form 3115) or administrative relief may still apply.
  1. File and track the amended return
  • The IRS accepts paper-filed amended returns and, for many tax years, e-filed Form 1040X via authorized software. Check IRS.gov for current e-file availability.
  • Use the IRS “Where’s My Amended Return” tool to track processing times; expect several weeks to months for processing depending on IRS backlog. Historically the IRS has estimated 8–12 weeks but delays can extend that time.
  1. Pay interest and penalties if owed
  • If correcting an underpayment, expect interest from the original due date and possibly penalties. You can request penalty relief for reasonable cause or other abatement programs; document your rationale and supporting evidence.

Practical examples (real-world scenarios)

Example A — Overclaimed depreciation on rental property

A landlord discovers they used a 27.5-year residential recovery period for a structural improvement that should have been depreciated separately over 5 years. Correcting the error reduced depreciation claimed in the affected year, increasing taxable income. We amended the return for that year using Form 1040X, attached the corrected Form 4562, and paid the additional tax plus accrued interest. Because the mistake was isolated to one year, amendment was the simplest route.

Example B — Missed MACRS depreciation for machinery across three years

A manufacturer consistently misapplied a recovery period for a class of machinery. Because the error affected multiple years and the method used was incorrect, a change in accounting method (Form 3115) was the preferred approach. The 3115 generated a Section 481(a) adjustment to spread the correction across tax years, avoiding separate amendments to older returns.

What to attach to an amended return

  • Corrected Form 4562 for each year adjusted
  • A one-page explanation of the reason for amendment and how computations were made
  • Corrected schedules (Schedule E for rental properties, Schedule C for sole proprietors, etc.)
  • Corrected K-1s if partnership or S-corp items changed
  • Supporting invoices, closing statements, or other proof of placed-in-service dates

Including clear, easy-to-follow calculations reduces the chance the IRS will ask for more information and helps achieve a faster resolution.

Penalties, interest, and relief options

  • Interest accrues on unpaid tax from the original due date. If you underpaid because of a depreciation error, you’ll owe interest and possibly accuracy-related penalties.
  • Relief options include reasonable cause abatement, first-time penalty abatement (for certain penalties), or administrative relief procedures. FinHelp has resources on abatement for misreported business depreciation deductions.

Related issues to watch for

Quick checklist before filing

  • Have you recomputed depreciation using Publication 946 and Form 4562?
  • Have you determined whether an amended return or Form 3115 is the right remedy?
  • Are you within the refund statute of limitations if you expect money back?
  • Have you attached clear documentation and corrected schedules?
  • Did you consider effects on basis and future depreciation and potential recapture?

Final professional tips from practice

  • Keep an organized depreciation schedule year-to-year; this saves hours if corrections are needed.
  • When in doubt about an accounting-method-level error, consult a CPA before filing multiple amended returns — Form 3115 may be more efficient and avoid blown deadlines.
  • If a large refund is at stake, verify who can sign amended returns (taxpayer or power-of-attorney) and whether corrected K-1s are required for partners/shareholders.

Disclaimer

This guide is educational and reflects professional practice experience. It does not replace personalized tax advice. For recommendations specific to your returns, consult a licensed CPA, enrolled agent, or tax attorney. Always verify current procedures and forms at IRS.gov (e.g., Form 1040X, Publication 946, Form 4562, Form 3115).

Authoritative sources

  • IRS Publication 946, How To Depreciate Property (IRS)
  • IRS Form 1040X, Amended U.S. Individual Income Tax Return (IRS)
  • IRS Form 4562, Depreciation and Amortization (IRS)
  • IRS Form 3115, Application for Change in Accounting Method (IRS)