Cost Segregation study that requires Form 3115

[7037851231]

Hello, I just received the reports from my Cost Seg study for a property that I originally purchased in 2022, started using as a short - term rental in late 2022, 2023 and 2024.  Then I renovated the property and now have the cost segregation results on the renovated property including an additional separate building.  The resulting house and new smaller house are the subject of the Cost Seg study.    My study shows a Total Project Cost, A Project Cost Disposed and a New Basis after Disposition.

Since I had depreciated the property for 3 years prior to the renovation and cost segregation study, I understand I need to submit form 3115 to adjust the prior depreciation deductions.

How do I enter this data into TurboTax?

Do I EDIT the existing basis numbers for the original house?

Do I zero out the original basis numbers and then ADD assets in categories for 5-yr, 15-yr and 39-yr?

Am I trying to agree to the Total Building Cost? Or to the New Basis after Disposition?

Will TurboTax prompt me to complete an IRS Form 3115?

Does Form 3115 require that I mail it in hardcopy?

Thank you!

[DianeW777]

No you will not be prompted to complete Form 3115 by TurboTax. Before you begin to make any adjustments or changes please review the following.

1. Keep the information for all depreciable assets before the study (2024). This will provide the depreciation already used on prior years and allow you to calculate the depreciation not yet used prior to 2025.
2. Yes, you can edit the existing cost basis and collect the total depreciation you have not previously used. 
3. No, do not zero out the existing basis for the rental house however if part of that cost is now designated to the smaller house, you will change the cost basis based on the study. It's up to you if you want to show two rental units now splitting the cost appropriately.
4. Residential Rental property is 27.5 year, while nonresidential property (includes short term rentals) is 39 years.

Once you have the calculations for depreciation expense not previously used this amount will be entered on Form 3115. Continue to review all the instructions below.

The rule is as follows - To file IRS Form 3115 for an automatic accounting method change, you must file in duplicate: 

1. attach the original, unsigned form to your timely filed federal tax return (including extensions), and
2. mail a signed copy to the IRS National Office or Ogden, UT office.
   • Form 3115 Instructions (page 2)

Next, for the prior depreciation you have not used.  Form 3115 Instruction: 

By including this with the current year tax return, you can complete everything on the 2024 tax return.

• Adopt a change in accounting method: This option allows you to go back as far as you need. Keep in mind that even if you prepare the form 3115 in TurboTax, you will need to manually include the Section 481(a) adjustment to your return (see below).
  • Why am I adopting a change in accounting method? Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.
• You must use the TurboTax Desktop ‌ to complete this form. TurboTax doesn't help you with this form. And your return must be mailed because this form is not supported through e-file.

This must be completed and filed with the return on time (see options below). 

The depreciation will not link from Form 3115 to your Schedule E (as indicated above). Be sure to get the total accumulated depreciation prior to 2025, and enter that number on your Schedule E under 'Any Miscellaneous Expenses' then use the description F3115 Section 481(a), then add the amount. Your depreciation schedule will maintain the information for each asset for future use.

You can change to TurboTax Desktop if you choose.

• How to switch from TurboTax Online to TurboTax Desktop?

Additional options to consider: 

• While form 3115 is not supported in TT, you can include the adjustment amount in your tax return and still e-file your tax return.
• You would then need to complete form 8453, check the form 3115 box and mail both of these forms to the address on the instructions.  If you do this, make sure to send the envelope certified mail.
• Not necessarily advocating this method, for the simple fact the IRS staff is down in staff and just not sure of all the logistics given the reduction in staffing.
• If you decide to mail both the return with the form 3115, I also recommend you send this envelope certified mail as well.

Please update if you have additional questions or need further assistance.

@7037851231

[Edited: 03/02/2026 | 3:37 PM PST]

[7037851231]

Hello and Thank you for the quick response.

I am working on Turbo Tax Premier desktop version on a Mac.  I have 1 large house, which I expanded and remodeled in 2025.  Then on the same lot, I built a separate new garage and apartment unit.  I understand that this would be listed as a New Asset.  

The garage/apartment was begun in 3/2025 and completed in November 2025.  I think this is 27.5 year property but the cost seg statement shows it as 39year property so I am following up on that issue.

The reports that I have are:

New Garage/Apt

Main House Addition

Main House Improvements / Removal (?)

Original House/Disposition (Building Cost $779,425.72, Disposition Cost $536,094.07, New Basis after Disposition $243,331.65)

Shed - To Land. ($40,574.28)

The Cost study company is going to do the Form 3115 for me. 

Currently, my property is in Turbo Tax as Residential Rental Real Estate. 

From Form 4562:

Date in service 7/26/2022, cost net of land $820,000, Land $150,000, Bus. Use 79.41%. Section 179 '0', Special Depreciation Allowance '0' , Depreciable Basis $651,162.,Prior Depreciation (thru 12/31/2024) $66,820

I don't understand the references to 'Disposition' and 'Removal' and Shed - to Land

How do these figures get incorporated/updated into the Asset values on my return?

Note:  we did have a large outbuilding that was demolished and the Garage/Apt was built in that area.  Does that increase the amount that should be used as 'Land', bringing the total to $190,574.28?

I really appreciate your detailed instructions so far.

Thank you

[RobertB4444]

Shed to land is pretty straightforward as it adds to the land value, as you surmised.

Disposition is the sale or disposal of an asset.  In this case it could refer to the segregated assets that can be expensed rather than depreciated or the cost of assets that were removed from service prior to the new assets being entered.  It would be best to consult with the team that did the cost segregation as to what comprises that number.

The assets will be listed on the 3115.  There will be a bunch of new assets and the old assets will be "disposed" of and turned into new assets.  The cost segregation should include a list of all the assets and the dates to start their depreciation and so on.

If the garage apartment is going to be a short-term rental with stays averaging 7 days or less then the property is considered commercial and has to be depreciated over 39 years.