Cost Segregation
Cost Segregation Answers for Property Owners, Investors, and CPAs
Answers to the most common cost segregation questions, how studies work, who qualifies, what properties benefit most, how bonus depreciation applies, and what to expect from an engineer-powered study.
Accelerate your depreciation, improve your cash flow, and maximize your deductions. NCSS studies commonly generate $60,000–$100,000 in year-one tax savings per $1M in building cost (37% bracket).
Estimate your cost segregation savings
Based on averages from 686 real NCSS studies (2021–2025). Choose your property type and building cost to see a first-year estimate.
Start here
What is cost segregation?
Cost segregation is a powerful tax strategy that helps real estate owners reduce their income tax liability by identifying and reclassifying portions of a property from long-life real property (27.5 or 39 years) to shorter-life personal property (5, 7, and 15 years).
In simple language, it lets you assign certain building components a “faster aging schedule,” which accelerates depreciation deductions and unlocks tax savings much sooner than traditional methods allow. That improves your cash flow and boosts your ROI by freeing up more money sooner, the best cheat code for property owners, fully approved by the IRS.
Cost segregation is likely a great fit if you:
- Own or recently purchased commercial, multifamily, or rental real estate
- Have a property with a cost basis of roughly $500K+
- Have taxable income that could benefit from accelerated depreciation
- Recently built, bought, renovated, or improved a property
- Want a CPA-ready study with engineering-backed documentation
The Basics
The basics of cost segregation
Before diving into the tax savings, it helps to understand what cost segregation is actually doing behind the scenes. These answers break down the basic terms, timelines, and asset categories so you can see how a cost segregation study translates into a more detailed depreciation strategy for a building.
How does cost segregation work?
Cost segregation works by separating your building into individual assets, pieces of the building that can be depreciated sooner than the actual building itself.
Instead of depreciating the entire property over 27.5 or 39 years, we identify components like flooring, lighting, wiring, and certain improvements that the IRS allows to be depreciated over 5, 7, or 15 years.
Cost segregation essentially speeds up the depreciation for your building. The result is accelerated depreciation: your deductions increase and your cash flow improves, all by classifying things correctly.
What is a cost segregation study?
A cost segregation study is a detailed engineering analysis of a property conducted by a cost segregation firm.
It reviews the purchase price, construction costs, renovation costs, building systems, site improvements, and supporting documents. The final study gives your CPA the information needed to update depreciation schedules and apply the appropriate recovery periods. A strong study should be organized, well-documented, and easy for your tax professional to use.
For property owners, the goal is simple: find eligible assets, accelerate depreciation where allowed, and support the tax position with clear documentation.
What is included in a cost segregation study?
A cost segregation study includes a property review, an asset breakdown, an engineering analysis, and a final report your CPA needs to apply accelerated depreciation.
Think of it as a detailed map of your building for tax purposes. The study looks at the property’s purchase price, construction or renovation costs, site improvements, building components, and supporting documents. Then those pieces are sorted into the correct depreciation categories.
In simple terms, the study shows what parts of your property can be depreciated faster, why they qualify, and how your CPA can use the information. No guessing, no napkin math, just a documented breakdown of the building.
What assets can be depreciated faster?
A cost segregation study can identify certain parts of a property that may be depreciated faster than the building itself, usually building components, specialty items, or land improvements that qualify for shorter recovery periods.
- Certain flooring, wall coverings, and decorative finishes
- Specialty lighting, electrical, plumbing, or HVAC components
- Cabinets, countertops, millwork, and built-in fixtures
- Parking lots, sidewalks, landscaping, fencing, and exterior lighting
- Equipment or systems tied to a specific business use
- Some tenant improvements or renovation-related components
The exact assets depend on the property type and how the space is used. A restaurant, medical office, apartment building, warehouse, and retail center can all have different depreciation opportunities.
What is the difference between 5-year, 7-year, 15-year, 27.5-year, and 39-year property?
The difference is how long each type of property takes to depreciate for tax purposes. A cost segregation study separates building components into the correct categories so eligible items can be depreciated faster.
- 5-year property usually includes certain personal property, specialty finishes, equipment, appliances, and components tied to a specific business use.
- 7-year property may include certain office furniture, fixtures, or equipment, depending on the property and use.
- 15-year property often includes land improvements such as parking lots, sidewalks, landscaping, fencing, and exterior lighting.
- 27.5-year property is used for residential rental buildings, apartments, multifamily properties, and long-term rental homes.
- 39-year property is used for commercial buildings, offices, retail centers, warehouses, hotels, and many other business properties.
Eligibility & Property Types
Who and what qualifies for a cost segregation study
Cost segregation can be a powerful strategy, but it is not automatically the right fit for every owner or every property. This section breaks down who typically benefits most, which property types qualify, and when a study is worth exploring before you spend money on the full report.
Who should get a cost segregation study?
A cost segregation study is a good fit for property owners who want to accelerate depreciation, reduce taxable income, and improve cash flow from their real estate.
It is especially worth exploring if you own, recently purchased, built, or renovated an income-producing property. This includes commercial property owners, multifamily investors, short-term rental owners, and business owners who own the building they operate from.
It usually makes the most sense when the property has enough value to create meaningful tax savings, often a property basis of $500,000 or more, taxable income that can use the deductions, and a plan to hold the property long enough to benefit.
What types of properties qualify?
Many income-producing properties can qualify, including commercial buildings, multifamily properties, short-term rentals, and certain residential rental properties.
Common qualifying types include office buildings, retail centers, restaurants, medical buildings, warehouses, manufacturing facilities, hotels, self-storage facilities, apartment buildings, mobile home parks, and mixed-use properties.
A study can also be used for newly purchased properties, newly constructed buildings, major renovations, tenant improvements, and properties you have owned for several years.
Can residential rental properties qualify?
Yes, residential rental properties can qualify if they are used for rental or income-producing purposes.
This can include single-family rentals, apartment buildings, multifamily properties, and some short-term rentals. A study identifies components that may qualify for shorter depreciation periods rather than treating the entire building as 27.5-year property. Examples include certain flooring, cabinetry, appliances, specialty systems, and exterior improvements.
The property cannot be your personal primary residence. The IRS cares about how the property is used, so the rental activity and your tax situation matter. A CPA can confirm how the deductions apply to your return.
Can short-term rentals qualify?
Yes, short-term rentals can qualify if they are used as income-producing rental properties.
A study can identify parts of the rental that may qualify for faster depreciation, such as certain finishes, appliances, furniture-related components, land improvements, and specialty building features.
Short-term rentals can be especially interesting from a tax-planning perspective, because the rules may differ from traditional long-term rentals depending on average guest stay, services provided, and material participation.
Can multifamily properties qualify?
Yes, multifamily properties are often strong candidates for a cost segregation study.
Apartment and multifamily properties typically include many components that may qualify for accelerated depreciation: flooring, appliances, cabinetry, lighting, plumbing, site improvements, parking areas, landscaping, and exterior features.
The larger and more complex the property, the more depreciation opportunities there may be. A duplex may qualify, but a larger apartment building typically has more pieces to work with.
Can commercial buildings qualify?
Yes, commercial buildings are among the most common properties used in cost segregation studies.
Commercial properties often include offices, retail centers, restaurants, warehouses, hotels, medical buildings, self-storage facilities, manufacturing spaces, and mixed-use buildings, with specialty systems, interior finishes, equipment, lighting, plumbing, parking lots, and other qualifying components.
Instead of treating everything as 39-year property, the study identifies which parts may qualify as 5-, 7-, or 15-year property. Commercial buildings tend to be more complex, and in cost segregation, complexity is often where the tax savings are hiding.
Can you do cost segregation on a property you already own?
Yes, this is often called a look-back cost segregation study.
A look-back study reviews a property purchased, built, or improved in a prior tax year. If eligible depreciation was missed, your CPA may be able to catch up on those deductions without amending every prior return.
This helps owners who have been depreciating the entire building over 27.5 or 39 years but never broke it into shorter-life assets. Year one is great, but “better late than never” can still be a very real tax strategy.
Can you do cost segregation on a renovated property?
Yes, renovations, improvements, remodels, and build-outs can create new depreciation opportunities.
A study can review the renovation costs and determine which components may qualify for shorter recovery periods, including certain flooring, lighting, electrical, plumbing, fixtures, finishes, equipment, site improvements, and tenant improvements. This is especially helpful when the renovation involves significant interior upgrades or specialized systems.
What property value makes a study worth it?
A study is often worth exploring when the property has a cost basis of around $500,000 or more, although larger properties usually create stronger results.
Any property with projected tax savings that meaningfully exceed the cost of the study is worth considering. That is why a free projection is the best first step before paying for a full report.
Tax Savings & Bonus Depreciation
Tax savings and bonus depreciation
Cost segregation does not create a brand-new deduction. It accelerates depreciation deductions that would otherwise be spread over 27.5 or 39 years. The value comes from improving cash flow and moving deductions into earlier tax years.
How much can cost segregation save?
Savings depend on the property’s value, building type, tax situation, and how much of the property can be reclassified into shorter depreciation periods.
As a general guide, NCSS studies commonly generate roughly $60,000 to $100,000 in year-one tax savings per $1 million in building cost for an owner in the 37% bracket. Larger commercial or multifamily properties can create much bigger benefits.
The best way to estimate your savings is with a cost segregation projection, it gives you a clearer idea of the potential accelerated depreciation before you pay for a full study.
How does cost segregation reduce taxes?
Cost segregation reduces taxes by accelerating depreciation deductions.
Instead of depreciating the entire building slowly over 27.5 or 39 years, a study identifies parts of the property that may qualify for 5-, 7-, or 15-year depreciation. That means more deductions earlier in the ownership period, which may reduce taxable income, lower your current tax bill, and improve cash flow.
In simple terms, it does not create a brand-new deduction, it moves eligible deductions forward, so your building is not stuck depreciating at one slow speed.
What is bonus depreciation?
Bonus depreciation is a tax rule that allows certain qualified property to be deducted faster, often in the first year it is placed in service.
Cost segregation and bonus depreciation often work together: a study identifies which parts of a property may qualify for shorter depreciation periods, and bonus depreciation may allow some of those assets to be written off even faster.
Think of it this way, cost segregation finds the deductions, and bonus depreciation can hit the accelerator.
How does 100% bonus depreciation affect cost segregation?
100% bonus depreciation, which is now permanent, can make cost segregation more powerful because eligible assets identified in a study may be deducted much faster.
When 100% bonus depreciation applies, certain 5-, 7-, and 15-year property may qualify for a full first-year deduction instead of being depreciated over several years, significantly increasing the upfront tax benefit.
Cost segregation separates the faster-depreciating pieces of your property; 100% bonus depreciation may let you deduct those pieces right away. Same building, much faster tax benefit.
Can cost segregation create a paper loss?
Yes, cost segregation can create a paper loss by increasing depreciation deductions in the early years of ownership.
A paper loss means the property may show a tax loss even while producing positive cash flow, because depreciation is a non-cash deduction. You are not writing a check for depreciation, but it can still reduce taxable income.
This is one reason real estate investors like cost segregation: the property can make money in real life while the tax return tells a much more deduction-friendly story.
Can cost segregation offset rental income?
Yes, cost segregation can often offset rental income by increasing depreciation deductions from the property.
If the rental activity produces taxable income, the accelerated depreciation may reduce or even eliminate some of that income for tax purposes, improving after-tax cash flow. The exact benefit depends on your income, property type, passive activity rules, and overall tax situation, your CPA can confirm how it applies.
Can cost segregation offset W-2 income?
Cost segregation can offset W-2 income in some situations, but not for every taxpayer.
For many owners, rental losses are passive and usually offset passive income, not W-2 wages. However, if you qualify as a real estate professional, materially participate in certain short-term rental activity, or meet other IRS rules, the deductions may be able to offset non-passive income.
Can cost segregation offset capital gains?
Cost segregation does not usually offset capital gains directly, but it can still play an important role in a larger tax strategy.
The accelerated depreciation deductions may offset rental or other income if usable under the passive activity rules. Capital gains are generally treated differently, especially from selling a property. Cost segregation may also affect depreciation recapture at sale, so while it is not an “erase capital gains” button, it can be part of a smart plan with the right timing and CPA guidance.
Can cost segregation help high-income earners?
Yes, cost segregation can be especially helpful for high-income earners who own qualifying real estate and can use the accelerated depreciation.
High-income owners often have more tax liability to plan around, which can make improved cash flow more valuable. The biggest question is whether the deductions can actually be used, passive activity rules, real estate professional status, short-term rental rules, and the owner’s full tax picture all matter. High income creates the opportunity; the tax structure determines how much can be used now.
What happens if I cannot use the full deduction right away?
If you cannot use the full deduction right away, the unused losses may be carried forward to future tax years.
This can happen when depreciation creates more deductions than you can currently use under the passive activity rules. The deduction does not necessarily disappear, it may be suspended and used later when you have passive income, sell the property, or otherwise qualify to release the losses.
Cost, Timing & ROI
Timing, cost, and ROI of a cost segregation study
If you are considering a cost segregation study, it helps to understand what it may cost, how quickly you’ll see savings, and whether those savings are worth the cost of a study.
Can I do a cost segregation study after I already filed taxes?
Yes, this is usually handled through a look-back study.
A look-back study reviews a property you purchased, built, or improved in a prior tax year. If you missed depreciation deductions, your CPA may be able to catch them up using Form 3115 instead of amending every past return.
You are not out of luck just because tax season already happened, cost segregation can still find depreciation that was sitting there the whole time.
How far back can I do cost segregation?
You can often perform cost segregation on a property you purchased, built, or improved years ago, as long as you still own it and it qualifies.
This is where a look-back study comes in: it reviews prior depreciation and identifies deductions that may have been missed, which your CPA may apply as a catch-up adjustment using Form 3115. The best time to do a study is usually year one; the second-best time may still be now.
What is a look-back study?
A look-back study is a cost segregation study completed on a property you already own and placed in service in a prior tax year.
Instead of only applying cost segregation going forward, it can identify depreciation you may have missed in previous years, which your CPA may claim through an accounting method change, often using Form 3115.
Think of it as going back through the building’s tax history and saying, “Wait, these pieces did not need to depreciate that slowly.” It is not time travel, but for depreciation it can feel pretty close.
How much does a cost segregation study cost?
A cost segregation study typically costs several thousand dollars, with pricing depending on property size, type, complexity, and available documentation.
Studies typically range from about $4,000 to $15,000 or more. Larger or more complex properties may require a more detailed engineering analysis, while smaller properties may cost less.
The better question is not just “What does the study cost?” but “Will the projected tax savings outweigh the cost of the study?” A free projection can help answer that before you move forward.
Is cost segregation worth it?
Cost segregation is worth it when the projected tax savings exceed the cost of the study and the owner can actually use the accelerated depreciation.
It often makes the most sense for income-producing properties with a meaningful cost basis, high taxable income, recent purchase or renovation activity, and a plan to hold the property long enough to benefit. It may not be worth it for very small properties, properties being sold soon, or owners who cannot currently use the deductions.
How long does a study take?
A cost segregation study usually takes a few weeks, depending on property size, complexity, documentation, and whether a site visit is needed.
The process typically includes property review, document collection, engineering analysis, asset classification, report preparation, and CPA coordination. If you are using the study for an upcoming tax deadline, it is best to start early.
How quickly can I get the tax benefit?
You may be able to get the tax benefit as soon as your CPA applies the report to your tax return.
For a current-year property, the accelerated depreciation may be applied on that year’s return. For a look-back study, your CPA may use Form 3115 to claim missed depreciation as a catch-up adjustment. The study creates the roadmap; your tax return is where the benefit shows up.
What documents are needed?
A cost segregation study usually requires property records, purchase documents, construction details, and tax information.
Common documents include closing statements, purchase agreements, appraisals, depreciation schedules, construction invoices, renovation records, site plans, blueprints, photos, and prior tax information.
Not every owner has every document, and that is okay. A good firm can start with what is available and identify what else is needed, that is what the document collection step is for.
The Study Process
The process and timeline of a cost segregation study
Here is the step-by-step path from first review to a CPA-ready report.
Property Review
NCSS reviews your property details and determines the best path forward for a study.
Document Collection
You provide closing statements, depreciation schedules, construction documents, invoices, photos, or other available records.
Engineering Analysis
The property is analyzed by component to identify assets that may qualify for shorter recovery periods.
CPA-Ready Report
You receive a report your CPA can use to update depreciation and support the tax filing.
How does the cost segregation process work?
The process usually starts with a property review, then moves into document collection, engineering analysis, and a final CPA-ready report.
First, NCSS reviews the property details to understand building type, cost basis, placed-in-service date, and potential tax benefit. Then you provide documents such as closing statements, depreciation schedules, construction records, invoices, photos, or plans.
From there, the engineering team analyzes the property by component and identifies assets that may qualify for shorter depreciation periods. Once complete, you receive a report your CPA can use to update depreciation schedules and support the tax filing.
What does a cost segregation engineer do?
A cost segregation engineer reviews the property and identifies which building components may qualify for faster depreciation.
Instead of looking at the building as one large asset, the engineer breaks it into smaller pieces, flooring, lighting, electrical systems, plumbing, finishes, specialty components, and site improvements, then classifies them into the appropriate depreciation categories.
A strong study needs more than tax knowledge; it needs someone who understands buildings, construction costs, property systems, and how to document the analysis clearly.
Is a site visit required for cost segregation?
A site visit may be helpful, but it is not always required.
Some properties benefit from an on-site review, especially larger, more complex, or recently renovated buildings. In other cases, a study may be completed using photos, plans, invoices, construction records, and closing documents. The right approach depends on the property, available documentation, and the level of detail needed.
Can a cost segregation study be done remotely?
Yes, a study can often be done remotely, depending on the property and available documentation.
Remote studies may use photos, video walkthroughs, blueprints, site plans, closing statements, construction invoices, renovation records, and depreciation schedules. That said, remote does not mean casual, it should still be thorough, well-documented, and built for your CPA to use confidently.
What does the final cost segregation report include?
The final report includes the asset classifications, cost allocations, depreciation schedules, methodology, and supporting documentation your CPA needs to apply the study.
It typically shows which parts of the property were classified as 5-, 7-, 15-, 27.5-, or 39-year property, and explains how the analysis was completed and how the reclassified costs connect back to the property’s basis. A strong report is clear enough for your CPA to use and detailed enough to support the tax position if questions come up later.
Risk & IRS Questions
IRS audit, risk, and recapture
Before moving forward, it helps to understand how the IRS views cost segregation, what audit support looks like, how depreciation recapture works, and when the strategy may not make sense for your situation.
Is cost segregation legal?
Yes, cost segregation is legal when it is done correctly and supported by proper documentation.
The IRS recognizes cost segregation as a depreciation strategy and provides guidance on reviewing studies. The key is a reasonable methodology, accurate asset classifications, and clear support for the deductions claimed. It is a legitimate strategy, not a loophole, but it needs to be backed by the right support.
Is cost segregation risky?
Cost segregation is not automatically risky, but a poorly prepared study can create risk.
Risk usually comes from weak documentation, overly aggressive classifications, unsupported estimates, or a report your CPA cannot confidently use. A strong study explains what was reviewed, how assets were classified, and how the final schedules were created.
At NCSS, we have had 0 IRS losses in the 25+ years we have been performing cost segregation studies.
Will cost segregation trigger an audit?
A cost segregation study does not automatically trigger an IRS audit.
Many owners use cost segregation as part of normal tax planning. That said, any deduction should be supportable if the return is ever reviewed. The IRS has an Audit Techniques Guide for cost segregation, which means examiners have a framework for evaluating the quality of a study.
What happens if I get audited?
If your study is reviewed during an audit, the IRS may look at the report, asset classifications, methodology, cost allocations, and supporting documents.
A strong study makes that review easier by clearly showing how the property was analyzed and how the categories were determined, and your CPA may use it to explain the deductions claimed. This is why the quality of the study and the choice of firm matter.
Do I have to pay back the cost segregation when I sell?
You do not pay back the study itself, but depreciation recapture may apply when you sell the property.
Cost segregation changes the timing of depreciation, often larger deductions earlier in the ownership period. When you sell, your CPA reviews how much depreciation was taken and how it affects the final tax result.
What happens when I sell the property?
When you sell after using cost segregation, your CPA will review the sale price, adjusted basis, depreciation taken, and potential depreciation recapture.
The accelerated depreciation may affect the tax calculation at sale, but that does not mean the strategy was wrong, the benefits often include using deductions sooner, improving cash flow, and reinvesting money earlier.
Can cost segregation hurt me?
Cost segregation can hurt you if it is done poorly, applied to the wrong property, or done without considering your full tax situation.
A study may not be helpful if the tax savings are too small, the property will be sold very soon, the owner cannot use the deductions, or the report is too aggressive to support. It can also affect depreciation recapture when the property is sold.
Choosing a Provider
Choosing a cost segregation provider
Not all cost segregation studies are created equal. The quality of the study matters because your CPA needs clear schedules, your tax position needs support, and your documentation should make sense if the study is ever reviewed.
How do I choose a cost segregation company?
Choose a company that uses engineering-based methods, provides clear documentation, understands tax rules, and gives your CPA a report they can actually use.
A good provider should explain their process, show how assets are classified, support the numbers in the study, and answer questions if the report is ever reviewed. Look for experience, technical accuracy, audit support, and a clear projection before you move forward.
What makes a cost segregation study defensible?
A study is defensible when it is based on a clear methodology, accurate asset classifications, proper documentation, and an engineering-based review of the property.
It should show what was reviewed, how costs were allocated, which assets were reclassified, and why they qualify for shorter depreciation periods, and connect the final numbers back to the property’s purchase price, construction costs, or other supporting documents.
Can my CPA do a cost segregation study?
Your CPA can help determine whether a study makes sense, but most CPAs do not perform the full engineering-based study themselves.
A study usually requires construction knowledge, engineering analysis, asset classification, cost allocation, and detailed documentation. Your CPA’s role is usually to apply the completed study to your return, update depreciation schedules, and determine how the deductions fit your overall strategy. The best setup is a team approach.
Can I do cost segregation myself?
Technically you can try, but it is usually not recommended.
A proper study is not just a list of building parts, it requires engineering-based analysis, tax classification, documentation, cost allocation, and knowledge of IRS guidance. If the study is too aggressive, too vague, or unsupported, the deductions may be harder to defend.
What is the difference between an estimate and an engineering-based study?
An estimate gives you a rough idea of potential tax savings. An engineering-based study provides the detailed analysis and documentation your CPA needs to apply accelerated depreciation.
A projection is useful before you commit, it helps you decide whether the numbers are likely worth it. An engineering-based study goes deeper: it reviews the property, analyzes components, classifies assets, allocates costs, and creates a CPA-ready report. The estimate tells you what might be hiding in the walls; the study maps it out.
Can I hire a cost segregation expert online for remote consultation?
Most firms can handle the majority of the process remotely.
Construction documents, invoices, depreciation schedules, and photos can all be reviewed digitally. High-quality firms may still conduct a site visit, as the IRS recommends, especially for larger or more complex properties. So yes, just make sure they bring engineering expertise and audit-ready documentation, not just a Zoom background and a calculator.
Where can I find cost segregation consultants near me?
You can find consultants through an online search, a referral from your CPA, or professional organizations like the ASCSP, but thanks to remote technology, the right expert does not have to be in your zip code.
“Near me” should mean more than location: responsive, experienced, engineering-based, and able to provide a study your CPA can actually use. When you are reclassifying hundreds of thousands, or millions, of dollars in property costs, proximity is nice, but expertise is everything.
How do I request a cost segregation proposal?
Most firms can provide a proposal with a few basic details: purchase price (or cost basis), property type, placed-in-service date, location, and whether there were renovations.
Send that over and they’ll typically provide a fee quote and estimated benefit. Be sure to ask about methodology, engineering involvement, timeline, and audit support.
Why choose NCSS?
National Cost Segregation Services combines engineering analysis, tax-focused documentation, and decades of experience to help property owners accelerate depreciation with confidence.
NCSS provides free projections before the full study, so you can understand the potential benefit before moving forward, no guessing, and no mystery spreadsheet handed to your CPA at the last minute. With engineer-powered studies, CPA-ready reports, audit support, and 25+ years of experience, NCSS turns complex depreciation rules into a practical tax strategy.
CPA & Filing Questions
CPA and filing questions
How a completed study connects to your tax return, and what your CPA needs from you.
How is cost segregation reported on a tax return?
Cost segregation is reported through updated depreciation schedules prepared by your CPA.
After the study is complete, the reclassified assets are separated into the correct categories (5-, 7-, 15-, 27.5-, or 39-year property). Your CPA then uses those schedules to apply the accelerated depreciation deductions on your return.
What is Form 3115?
Form 3115 is the IRS form used to request a change in accounting method, including certain depreciation changes.
In cost segregation, it is often used for a look-back study. If you already filed using the old depreciation method, your CPA may use Form 3115 to apply the new method and claim missed depreciation as a catch-up adjustment. Think of it as the paperwork that tells the IRS, “We are changing how this property should have been depreciated.”
How does cost segregation affect depreciation schedules?
Cost segregation changes the schedule by separating certain components into shorter recovery periods.
Without a study, much of the building may be depreciated over 27.5 years (residential) or 39 years (commercial). A study may identify assets that qualify for 5-, 7-, or 15-year depreciation instead. The result is usually more depreciation in the earlier years and less later. Same property, smarter schedule.
What should I give my CPA?
Give your CPA the completed study, depreciation schedules, asset classifications, and any supporting documentation provided with the report.
Your CPA may also need prior depreciation schedules, tax returns, closing statement, purchase records, construction invoices, renovation details, and placed-in-service date. For a prior-year property, your CPA may also review whether Form 3115 is needed.
Find out how much you can save with a cost segregation study
The easiest way to know whether a study is worth it is to review the property details, estimate the potential accelerated depreciation, and compare the projected benefit to the cost of the study. NCSS can provide a free projection and help you evaluate whether it is the right path for your investments.