Can I claim depreciation on a rental property if I haven’t done so in prior years?

Yes. but you can’t just start taking it going forward.

The IRS treats depreciation as “allowed or allowable.” That means:

• Even if you didn’t claim depreciation,
• The IRS treats it as if you did,
• And your basis is reduced anyway.

So skipping depreciation creates a mismatch: you lose deductions and your basis still goes down.

1. “Allowed or Allowable” Rule

Under IRS rules:

• Depreciation you claimed = allowed
• Depreciation you should have claimed = allowable

When you sell the property, the IRS will reduce your basis by depreciation you should have taken, even if you didn’t.

So skipping depreciation:

• Does not avoid tax
• Usually makes things worse later

2. Can You “Catch Up” Missed Depreciation?

Yes, using a Form 3115 (Accounting Method Change)

If you failed to claim depreciation in earlier years, the IRS generally requires you to:

• File Form 3115, Application for Change in Accounting Method
• Take a §481(a) adjustment to deduct missed depreciation in one year

This allows you to catch up depreciation without amending multiple old returns.

3. Common Scenarios

Example 1: You Forgot Depreciation for 3 Years

• Rental placed in service in 2021
• No depreciation claimed in 2021–2023
• Still own the property in 2025

You can file Form 3115 and deduct the missed depreciation in 2025.

Example 2: You Just Start Depreciating Going Forward

• You skip depreciation for several years
• You start depreciating in 2025 without correcting past years

Incorrect under IRS rules and may cause problems on audit or sale.

Example 3: Property Already Sold

• You never claimed depreciation
• You sold the property

You can still file Form 3115 with your return for the year of sale (or an amended one while that year is open) and deduct the missed depreciation, if you skipped it on two or more returns. The IRS still reduces your basis./

Result: higher taxable gain, offset by a one-time catch-up deduction.

4. Do You Need to Amend Prior Returns?

Usually NO

For missed depreciation:

• Form 3115 is the correct fix
• Amending multiple prior returns is not required in most cases

If you've skipped it on two or more consecutive returns, you've adopted an impermissible method, and Form 3115 is the fix

5. Depreciation Going Forward

Once corrected:

• Residential rental property is depreciated over 27.5 years
• Commercial property over 39 years
• Only the building is depreciated (not land)

Key Takeaways

• You cannot skip depreciation to avoid tax
• The IRS assumes depreciation was taken
• Missed depreciation can usually be recovered with Form 3115
• Failing to fix it can increase tax when you sell
• Professional help is recommended for Form 3115 filings

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Sources:

IRC §1016(a)(2) – Basis reduced by allowed or allowable depreciation

IRS Publication 527, Residential Rental Property

IRS Revenue Procedure 2015-13

IRS Revenue Procedure 2025-23 (list of automatic changes)

Form 3115 instructions

IRS Publication 544, Sales and Other Dispositions of Assets

IRC §168(c) – MACRS recovery periods