Can I just amend my last three US returns to claim the depreciation I missed on my UK rental?

Only if you have not adopted a method of accounting. Publication 946 treats using the same impermissible method on two or more consecutively filed returns as adopting it. If you reported the rental with no depreciation on two consecutive returns, the method is established and amending will not correct it. Form 3115 with a section 481(a) adjustment is the route, and it reaches back to the placed-in-service date rather than the three-year amendment window.

Is the recovery period for a UK rental property 27.5, 30 or 40 years?

Never 27.5. A UK property is used predominantly outside the United States, so the Alternative Depreciation System is required. Publication 946 shows residential rental property at a 30-year ADS period, with a footnote giving 40 years for property placed in service before 1 January 2018. Most UK landlords who have been letting for several years fall in the 40-year band, and the electing real property trade or business relief in that footnote is unavailable to them.

The UK gives no depreciation deduction at all. Does that mean I do not need to depreciate for the IRS?

No. The two systems are independent. GOV.UK allows revenue expenses and replacement of domestic items relief but no write-down of the building itself. US law requires depreciation and, under Publication 527, reduces your basis by the full amount you could have deducted whether you claimed it or not. Following the UK computation on your Schedule E is the single most common cause of an unclaimed depreciation problem.

What does the section 481(a) adjustment do if I never claimed any depreciation?

It equals the total depreciation allowable prior to the year of change, and it is negative, meaning it decreases taxable income. Publication 946 confirms a negative adjustment is taken into account entirely in the year of change and reported as other expenses. There is no four-year spread. The four-year period applies to positive adjustments, which arise where you over-claimed, for example by using 27.5 years instead of 40.

Can I file Form 3115 with my Streamlined submission?

No. The Instructions for Form 3115 require the original to be attached to a timely filed federal income tax return, including extensions, for the year of change, and delinquent Streamlined returns are not timely filed. Prepare the Streamlined years on the correct ADS basis, then file Form 3115 with the first timely filed current-year return. Whether you need it at all depends on whether an impermissible method was already established on earlier filed returns.

How does unclaimed depreciation affect the tax when I sell my London flat?

It increases your US gain without ever having given you a deduction. Basis is reduced by depreciation allowed or allowable, whichever is greater, so unclaimed depreciation still comes off. IRS Topic no. 409 confirms unrecaptured section 1250 gain from section 1250 real property is taxed at a maximum 25 per cent rate. The UK gain, reportable within 60 days of completion, is computed with no such reduction, so the two figures will differ.

Form 3115: Fixing Missed UK Rental Depreciation

When we take on missed US tax returns for a client with a London flat, the depreciation that was never claimed is almost never recoverable by amending, and it is never simply forgotten. US tax law treats depreciation on residential rental property as compulsory rather than optional, and once the same wrong treatment has appeared on two or more consecutively filed returns it has hardened into a method of accounting. From that point the correction runs through Form 3115, Application for Change in Accounting Method, described at irs.gov/forms-pubs/about-form-3115, with a section 481(a) adjustment that pulls every missing dollar of depreciation into a single year.

The stakes are larger than the annual deduction. Publication 946 at irs.gov/publications/p946 states the rule in one sentence, which is that you must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Allowed means what you actually deducted. Allowable means what you were entitled to deduct. A UK landlord who claimed nothing for eleven years still sells with a basis reduced by eleven years of depreciation, and pays US tax on gain that was never matched by a deduction. That is the phantom gain, and Form 3115 is the mechanism that stops it becoming permanent.

Depreciation on a UK rental is mandatory for US purposes, not an election you can decline.
A UK property is used predominantly outside the United States, so the Alternative Depreciation System is required and the familiar 27.5-year period never applies.
The ADS recovery period is 30 years, but 40 years for property placed in service before 1 January 2018, which covers most established UK landlords.
One or two bad years can sometimes be amended; an established impermissible method must be changed on Form 3115.
The section 481(a) adjustment for unclaimed depreciation is negative, and a negative adjustment is taken entirely in the year of change.
Form 3115 attaches to a timely filed return, which is why it cannot ride along on the delinquent returns in a Streamlined package.

Why US tax law makes depreciation on a UK rental compulsory

UK landlords are used to a system in which there is no depreciation deduction at all. GOV.UK guidance on working out rental income at gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income allows revenue expenses that are wholly and exclusively for the purposes of the letting, and treats capital expenditure as not allowable against rental income. There is no wear and tear allowance for the building, and capital allowances are not available for a residential dwelling. So the instinct of a British investor, and of a British accountant preparing the SA105 pages, is that a building simply is not written down.

The US position is the opposite. Publication 527, Residential Rental Property, at irs.gov/publications/p527, is direct about it: you should claim the correct amount of depreciation each tax year, and if you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. There is no version of the rule in which not claiming preserves basis. The deduction is lost; the basis reduction happens anyway.

In the returns we prepare, this shows up most often in one of three ways. A US citizen who moved to London kept the old family home, or bought a buy-to-let, and reported the net rental profit on Schedule E using the UK figures their British accountant produced, because those figures were to hand and looked right. Or the property was reported correctly for income but the preparer never opened Form 4562, described at irs.gov/forms-pubs/about-form-4562, because the client never sent a completion statement. Or the property was depreciated, but over 27.5 years, which for a UK situs property is not merely generous but impermissible.

How long do you depreciate a UK rental property? The 40-year ADS trap

This is the single most commonly botched number in cross-border rental compliance, and it is worth being precise. Publication 946 lists the categories of property that must be depreciated under the Alternative Depreciation System, and one of them is any tangible property used predominantly outside the United States during the tax year. A flat in Islington or a terrace in Bath is exactly that. ADS is not an election here. It is required, which also means no special depreciation allowance is available for the property.

Under ADS the method is straight line and the convention for residential rental property is mid-month. The recovery period is where preparers go wrong. The ADS table in Publication 946 shows residential rental property at 30 years, with a footnote reading 40 years for property placed in service before 1 January 2018. There is a narrow relief in the same footnote for property held by an electing real property trade or business, but it is expressly unavailable where section 168(g)(1)(A) to (E) already applied to the property before 1 January 2018, and section 168(g)(1)(A) is the required-ADS category for property used predominantly outside the United States. In plain terms: a UK rental that was already being let before 2018 is stuck on 40 years, and the electing real property trade or business escape hatch does not open for it.

The practical spread is wide. A domestic US rental placed in service in 2015 is written off over 27.5 years. The same value of building in Wandsworth, placed in service the same month, is written off over 40 years, giving roughly 69 pence of deduction for every pound the domestic owner gets. If the UK property is commercial rather than residential, ADS runs to 40 years for nonresidential real property as well, against 39 years under the general system domestically. Getting this wrong in either direction is a method error, not a maths error, which matters enormously for how it is fixed.

Required ADS: any tangible property used predominantly outside the United States during the tax year, per Publication 946.
Method: straight line. Convention for residential rental property and nonresidential real property: mid-month.
Residential rental property placed in service before 1 January 2018: 40-year ADS recovery period.
Residential rental property placed in service after 31 December 2017: 30-year ADS recovery period.
Nonresidential real property under ADS: 40 years.
No special depreciation allowance is available for property that is required to be depreciated under ADS.
The 27.5-year general depreciation system period never applies to a UK situs residential rental.

Splitting land from building on a London flat

You cannot depreciate land. Publication 527 is unambiguous that the cost of land is not depreciable because land generally does not wear out, become obsolete or get used up, and that clearing, grading, planting and landscaping costs are usually part of the cost of land. Where a purchase price covers both, the publication requires you to divide the cost, allocating to each asset the ratio of its fair market value to the fair market value of the whole property at the time of purchase, and permits an allocation based on assessed values for real estate tax purposes if you are not certain of the fair market values.

That second method is written for a US county assessor's roll, and there is no British equivalent. Council tax bands are not assessed values of land and building, and a UK completion statement will not break out a land component. In practice we build the allocation from contemporaneous evidence and document the methodology in the file: a surveyor's or valuer's report obtained at or near acquisition, the buildings reinstatement figure on the insurance schedule, or a supportable market analysis of comparable site values. For a leasehold flat in a mansion block the land element attributable to a single unit is typically small, and the analysis is different from a freehold house with a large garden in the Home Counties. The point is that the split has to be reasoned and evidenced rather than assumed, because it drives every subsequent year and the eventual section 481(a) figure.

Two further basis points get missed. First, acquisition costs that are capital in nature, including Stamp Duty Land Tax and legal fees on purchase, form part of the US basis of the property and are allocated between land and building on the same ratio. Second, if the property was your home before you let it, the basis for depreciation is the lesser of its adjusted basis or its fair market value when you changed it to rental use, a rule set out in Publication 527. A US citizen who lived in a London flat through a period of strong capital growth and then moved abroad and let it out can find the depreciable base is the historic cost rather than the value on the day the tenants moved in. Separately, improvements made after the property is let are treated as separate depreciable property with their own placed-in-service date.

Amended return or Form 3115? The two-year rule decides

This is the fork in the road, and it is decided by a definition rather than by preference. Publication 946 defines adoption of an accounting method for depreciation as using a permissible method when you file your first tax return, or using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. One bad year has not adopted anything. Two consecutive bad years has.

Where a method has not been adopted, an amended return is the route, and Publication 946 lists the situations in which you can amend to correct depreciation: a mathematical error in any year, a posting error in any year, where you have not adopted a method of accounting for property placed in service in tax years ending after 29 December 2003, and where the incorrect amount was claimed on property placed in service in tax years ending before 30 December 2003. The amended return must be filed by the later of three years from the date you filed the original return for the year concerned, or two years from the time you paid the tax for that year.

Where a method has been adopted, amending is not available and Form 3115 is required. Publication 946 gives examples of what counts as a change in method of accounting for depreciation, and each of them is a live scenario for a UK landlord:

A change from an impermissible method of determining depreciation, where that method was used in two or more consecutively filed tax returns. This is the landlord who claimed nothing for years.
A change in the treatment of an asset from nondepreciable to depreciable, or the reverse. This is the landlord who treated the whole purchase price as land or as a non-business asset.
A change in the depreciation method, period of recovery, or convention of a depreciable asset. This is the landlord depreciated over 27.5 years who should have been on 40.

Equally important is what is not a method change and therefore cannot be fixed on Form 3115. The Instructions for Form 3115 at irs.gov/instructions/i3115 state plainly that you do not file the form to change the placed-in-service date, to make or revoke a depreciation election under section 167, 168, 179 or 197, or to change a useful life under section 167 outside specified circumstances. Publication 946 adds that a change in use of an asset in the hands of the same taxpayer, and any change in the placed-in-service date, are not method changes. If your earlier returns used the wrong date the property was first let, Form 3115 will not cure it and that year has to be dealt with on its own terms.

What the section 481(a) adjustment actually does

The section 481(a) adjustment is the device that prevents the correction from either duplicating or omitting deductions. Publication 946 defines it for depreciation with unusual clarity: where you file Form 3115 and change from an impermissible to a permissible method, the adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change, and if no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change.

For the landlord who claimed nothing, that produces a negative adjustment, and negative is the direction you want. A negative section 481(a) adjustment decreases taxable income, is taken into account in the year of change, and is reported on the business return as other expenses. There is no four-year drip. Every year of missed depreciation lands in one tax year. The four-year spread in the Instructions for Form 3115 applies to positive adjustments, which increase taxable income and are generally taken into account over four tax years, with an election available for a one-year period where the total positive adjustment is less than 50,000 dollars. A landlord who over-depreciated on 27.5 years instead of 40 is in that positive camp and should model the spread before filing.

One caveat that catches people out. A large negative adjustment on a rental activity is still rental deduction, and Publication 527 sets out the at-risk and passive activity limitations that apply to a net loss on Schedule E. A 190,000 dollar catch-up deduction on a property producing modest net rent may not be usable in the year of change and may instead suspend forward. That does not make the filing wrong, and the suspended loss is generally freed on a fully taxable disposition of the activity, but it changes the cash-flow story you tell the client and it changes whether the exercise is worth doing before or after a planned sale.

Negative section 481(a) adjustment (unclaimed depreciation): one tax year, the year of change, reported as other expenses.
Positive section 481(a) adjustment (over-claimed depreciation): generally four tax years, year of change plus the next three, reported as other income.
One-year election available for a positive adjustment of less than 50,000 dollars, made on the relevant line of Form 3115.
If you change from one permissible method to another permissible method, the section 481(a) adjustment is zero.
Under examination, the positive adjustment period shortens to two years unless a listed window applies.

How to file Form 3115 and what goes with it

A change from an impermissible to a permissible method of accounting for depreciation for property owned at the beginning of the year of change is an automatic change, designated change number 7 in the list of designated automatic accounting method change numbers in the Instructions for Form 3115. No user fee is required for a Form 3115 filed under the automatic change procedures. The governing procedural rules are in Revenue Procedure 2015-13, published in Internal Revenue Bulletin 2015-5 at irs.gov/irb/2015-05_IRB, and the current list of automatic changes is Revenue Procedure 2025-23, published in Internal Revenue Bulletin 2025-24 at irs.gov/irb/2025-24_IRB. Where the property has already been disposed of and depreciation was never taken or was understated, the analogous change carries designated change number 107.

The mechanics are duplicate filing. The original Form 3115 attaches to the filer's timely filed federal income tax return, including extensions, for the year of change. A signed copy goes to the IRS National Office no earlier than the first day of the year of change and no later than the date the original is filed, by post to Internal Revenue Service, Ogden, UT 84201, M/S 6111, or by fax to 844-249-8134. The IRS does not send acknowledgements of receipt for automatic change requests, so your own proof of filing is the only record you will have. Every applicant changing a depreciation method must complete Schedule E of the form and attach a statement describing the property, its type, its placed-in-service year, and its use in the income-producing activity.

Confirm the property is within the automatic change procedures and identify the correct designated change number.
Recompute allowable depreciation from the placed-in-service date to the start of the year of change, using ADS, straight line, mid-month and the correct 30 or 40-year period.
Compute the section 481(a) adjustment as total allowable less total actually deducted, and attach the computation statement showing the methodology.
Complete Schedule E of Form 3115 and the property description statement.
Attach the original to a timely filed return for the year of change and send the signed copy to Ogden or fax it.
Carry the corrected ADS schedule forward on Form 4562 and Schedule E for every subsequent year.

One eligibility rule deserves attention if a sale is in prospect. The Instructions for Form 3115 list, among the requirements for using the automatic change procedures, that the requested year of change is not the final year of the trade or business, while noting that specific guidance may permit a change in a final tax year and pointing to the depreciation changes as an example. Selling the flat in the same year you were planning to file is not automatically fatal, but it moves you into a narrower part of the rules and it should be checked before the exchange of contracts rather than after.

The allowed or allowable trap: phantom gain when you sell the flat

Here is why this is not a paperwork exercise. Take an illustration, and treat every figure in it as illustrative rather than as a real client. Assume a US citizen bought a London flat in June 2014 for 600,000 pounds including Stamp Duty Land Tax and legal costs, and let it from 1 July 2014. Assume, purely for the illustration, an exchange rate of 1.65 US dollars to the pound on the date of purchase, giving a US dollar basis of 990,000 dollars, and assume a documented allocation of 75 per cent to the building, giving a depreciable base of 742,500 dollars.

Because the property was placed in service before 1 January 2018 and is used predominantly outside the United States, the ADS recovery period is 40 years, straight line, mid-month. That is 18,562 dollars a year, or about 8,500 dollars in the short first year. From July 2014 to the end of 2024 the depreciation allowable is roughly 194,000 dollars. Suppose the client claimed none of it, and the returns for those years were either missing or reported the UK net profit with no Form 4562. The 194,000 dollars is gone as a deduction. It is not gone from the basis calculation. On a sale, the adjusted basis is reduced by depreciation allowed or allowable, whichever is greater, and the greater figure here is 194,000 dollars of allowable depreciation nobody ever deducted.

That extra 194,000 dollars of gain is not taxed at the ordinary long-term capital gain rate either. IRS Topic no. 409 at irs.gov/taxtopics/tc409 states that the portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25 per cent rate. So the client pays up to 25 per cent on a slice of gain created entirely by deductions they never took. Filing Form 3115 with a negative section 481(a) adjustment for the year of change converts that phantom gain into a real deduction in a single year. Do it before the sale, not after, and be aware that the corresponding UK disposal has no equivalent adjustment at all, which is precisely why the two gain figures will not match.

How does this work inside a Streamlined catch-up of missed US tax returns?

Most UK landlords who need Form 3115 discover it in the middle of fixing missed US tax returns, and the sequencing question is genuinely difficult. The Streamlined Foreign Offshore Procedures, set out at irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states, require delinquent or amended returns for each of the most recent three years for which the due date has passed, delinquent FBARs for each of the most recent six years for which the FBAR due date has passed, and a Form 14653 certification that the failure resulted from non-willful conduct. A taxpayer who qualifies is not subject to failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties. The general framework sits at irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures.

The trap is procedural. The Instructions for Form 3115 require the original form to be attached to the filer's timely filed federal income tax return, including extensions, for the year of change. Delinquent returns filed under Streamlined are, by definition, not timely filed. Form 3115 therefore does not ride along inside the Streamlined package. In the engagements we run, the three Streamlined years are prepared on the correct ADS basis where no method has yet been established, and the Form 3115 is filed with the first timely filed current-year return that follows, with a year of change that is a current year and a section 481(a) adjustment computed to the beginning of that year.

That leads to the question almost nobody addresses: does a catch-up filer even have a method to change? The answer turns on the return history, not on the property history. If the taxpayer has never filed a return reporting the rental at all, the first return that reports it is the return on which a method is adopted, and adopting a permissible ADS method on those Streamlined returns means there is nothing to change and no Form 3115 is needed. If the taxpayer filed returns for years reporting the rental income with no depreciation, and did so on two or more consecutively filed returns, an impermissible method is already established and Form 3115 is the route regardless of what the Streamlined returns now say. The mixed case is the common one: some years filed with zero depreciation, some years never filed at all. Then the sequence of the filed returns is what matters, and the analysis has to be done on the actual filing history before a single figure is computed.

There is a second decision hiding inside this. Preparing the three Streamlined years with correct ADS depreciation reduces the US tax due in those years, which reduces the amount payable with the submission. But it does not recover the depreciation from years outside the three-year window, which for a property let since 2014 is the majority of it. Only the section 481(a) adjustment on Form 3115 reaches back to the placed-in-service date. Treating the Streamlined filing as the whole solution leaves most of the deduction on the table and leaves the basis reduction fully intact.

What the UK side gives you, and what it does not

Nothing on the UK side mirrors any of this, and the mismatch is the reason the two returns will never reconcile line by line. UK rental profits are computed with no deduction for the building. GOV.UK allows revenue expenses wholly and exclusively for the letting, permits replacement of domestic items relief for replacing movable furniture, appliances and kitchenware in a dwelling from April 2016, and restricts relief for residential property finance costs to the basic rate of Income Tax from April 2020. There is a property allowance of up to 1,000 pounds a year of tax-free property income, but claiming it means you cannot deduct your expenses.

The consequence is that US taxable rental income on a UK flat is systematically lower than UK taxable rental profit, sometimes materially so once the depreciation and the different treatment of mortgage interest are both in play. That can leave UK tax paid on the property exceeding the US tax on the same income, producing excess foreign tax credits in the passive category rather than a US liability. On a disposal the mismatch reverses and widens. GOV.UK confirms at gov.uk/tax-sell-property that Capital Gains Tax is due on the sale of a buy-to-let and that most sales of UK property must be reported and paid within 60 days, and gov.uk/capital-gains-tax/rates sets residential property rates at 18 per cent and 24 per cent depending on which Income Tax band the gain falls in, with an annual exempt amount of 3,000 pounds. The UK gain is computed from acquisition cost with no reduction for depreciation. The US gain is computed from a basis reduced by depreciation allowed or allowable, is measured in dollars using historic exchange rates, and carries an unrecaptured section 1250 layer taxed at up to 25 per cent that has no UK counterpart at all.

A related point worth flagging because it sits in the same file. Where a sterling mortgage on the property is repaid or refinanced, the US foreign currency rules can produce a separate result on the debt that is entirely invisible to the UK return. It is a different computation from the depreciation catch-up, it is not fixed by Form 3115, and it needs to be identified before completion rather than reconstructed afterwards.

The sequence we follow in practice

Pull the full US filing history first, not the property file. Establish exactly which years were filed and how the rental was reported on each, because that determines whether a method exists.
Fix the placed-in-service date and the depreciable base before anything else, since Form 3115 cannot change a placed-in-service date and an error there is not curable by a method change.
Evidence the land and building allocation contemporaneously, using a valuation, insurance reinstatement figures or comparable site analysis, and write the methodology into the file.
Recompute the entire ADS schedule from the placed-in-service date, checking the 30 or 40-year period against the actual placed-in-service year.
Decide whether the correction is an amended return for one or two unadopted years or a Form 3115 for an established method, and do not blend the two.
If a Streamlined submission is in progress, prepare those years correctly and file Form 3115 with the following timely filed return.
Model the year-of-change deduction against the at-risk and passive activity limitations before promising the client a refund.
Check the disposal timeline, because the final year of the trade or business is an eligibility question for automatic change procedures.

The failure modes we see most often

Depreciating a UK flat over 27.5 years because the software defaulted to residential rental property without an ADS override.
Assuming the 30-year ADS period applies to a property that was already let in 2016, when the 40-year period governs.
Amending three years of returns to add depreciation when the method was established years earlier, which does not correct the method and does not reach the older years.
Attaching Form 3115 to the delinquent returns in a Streamlined package, when the form requires a timely filed return for the year of change.
Sending the original Form 3115 to Ogden and forgetting the copy that belongs with the return, or the reverse.
Skipping the land allocation entirely and depreciating the full purchase price, which creates a positive section 481(a) exposure rather than a negative one.
Selling the property first and discovering the phantom gain in the following spring, when the year-of-change options have narrowed.

None of this is exotic. It is the arithmetic of a rule that most UK-based owners have never been told applies to them, compounded over the number of years the property has been let. The longer the property has been in service, the larger the number, and the more the allowed or allowable rule works against the owner. Where missed US tax returns are being brought current, the depreciation position should be settled at the same time as the filing position, because the two are decided by the same set of returns and correcting one without the other leaves the expensive half undone.