Unlocking Bonus Depreciation with the §481(a) Adjustment

Real estate investors often assume the biggest tax breaks come when you buy a new property, but that's not always true. In 2025, a powerful combination of updated depreciation rules and existing IRS procedures allows you to unlock massive deductions on properties you already own. By leveraging a cost segregation study, Form 3115, and the IRC §481(a) adjustment, you can accelerate years of missed depreciation into a single tax year, without amending a single return.

In this article, we’ll break down exactly how this works, including:

• How the new law interacts with older properties
• What the §481(a) catch-up adjustment really is
• Why Form 3115 is the linchpin to triggering it
• A full numerical example showing how it works
• Critical compliance steps to execute this correctly

Let’s dive in.

Let’s say you bought a $800,000 rental property in 2020, allocating $700,000 to the building and $100,000 to land (which isn’t depreciable). You’ve been depreciating that $700,000 over 27.5 years using straight-line MACRS—about $25,455 per year.

By 2024, you’ll have taken about $121,000 in depreciation.

So far, this is standard stuff. But it’s also inefficient because, without a cost segregation study, you’re missing out on tens of thousands in faster depreciation and early tax savings.

With the passage of the "One Big Beautiful Bill," 100% bonus depreciation is now permanently back for all qualified property placed in service on or after January 20, 2025.

This raises a big question:

What if I already own a property placed in service years ago—can I still claim 100% bonus depreciation?

Answer: Yes—if you reclassify assets via a cost segregation study and properly file IRS Form 3115.

IRS Form 3115 is used to request a change in accounting method—in this case, to change how you depreciate your rental property after performing a cost segregation study.

When you file this form, the IRS doesn’t require you to amend prior-year returns. Instead, it uses Section 481(a) to determine the net adjustment between:

• What depreciation you should have taken under the new method, vs.
• What you actually took under the old straight-line method.

You then deduct that entire difference in the year of change—a §481(a) catch-up deduction.

🧾 Property Details

• Purchase Year: April 1st, 2020
• Building Value: $700,000
• No cost segregation was done originally

🧮 Depreciation Already Taken (2020–2024)

🛠️ 2025 Cost Segregation Study Results

Under the new method, bonus depreciation applies to 5 and 15-year assets if they are treated as placed in service on or after January 20, 2025. That’s precisely what Form 3115 allows.

🔁 Calculating the §481(a) Adjustment

What you should have depreciated from 2020–2024 (under the new method):

♦️ 100% bonus depreciation on 5- and 15-year property in 2020:
$60,000 + $40,000 = $100,000

♦️ SL depreciation on the $600,000 structure:
$600,000 ÷ 27.5 × 5 = $109,090

♦️ Total new-method depreciation (2020–2024):
$209,090

What you actually took:
 $120,911

§481(a) catch-up deduction for 2025 = $209,090 – $120,911 = $88,179

This means the IRS lets you deduct $88,179 in 2025 to "true-up" your depreciation history, without amending a single return.

You still get a normal 2025 depreciation deduction under the new method:

• $600,000 structure × 1/27.5 = $21,818 (annual building depreciation)

So your total 2025 deduction is:

This isn’t a loophole. The IRS explicitly allows this strategy:

• Rev. Proc. 2015-13 and Rev. Proc. 2019-43 permit automatic method changes using Form 3115 for depreciation purposes.
• The IRS treats reclassified assets as newly placed in service in the year of change, making them eligible for 100% bonus depreciation if the law permits.
• You take the full §481(a) catch-up deduction in that year.

This is standard practice for real estate firms, cost segregation professionals, and even Fortune 500 companies using fixed asset systems.

To execute this strategy properly:

• Engage a qualified cost segregation firm. Sloppy studies = disallowed deductions.
• File Form 3115 correctly, including a §481(a) calculation. This form is complex and requires supporting documentation.
• Ensure your timing is right. Assets must be treated as placed in service on or after January 20th, 2025 to qualify for 100% bonus.
• Track passive activity rules. These deductions may be limited by passive income unless the taxpayer qualifies as a real estate professional or materially participates in the activity.

The return of 100% bonus depreciation in 2025 is big news, but the real strategic edge is how you combine it with:

• A cost segregation study
• A Form 3115 method change
• A §481(a) adjustment

This trifecta enables real estate investors to accelerate depreciation on older properties and potentially offset hundreds of thousands of dollars in passive income, all within a single tax year.

Real estate investors don’t need another one-off tax trick—they need a partner who understands how to turn complexity into long-term advantage. That’s precisely what the 2025 tax law unlocks when paired with the right strategy. By combining a cost segregation study, IRS Form 3115, and the §481(a) adjustment, investors can accelerate years of missed depreciation into a single deduction—often six figures or more—even on properties they’ve owned for years. It’s a powerful example of what thoughtful, relationship-driven planning can deliver when you go beyond basic compliance.

👉 Book a discovery call to find out how this strategy could lower your next tax bill