When Can You Do A Cost Segregation Study?

Cost segregation studies are a critical step for taking advantage of accelerated depreciation on your investment or commercial property. But if you’re new to cost segregation, you may be wondering when you can do a cost segregation study.

In this post, we’re going to break down the basics about how often you can do a cost segregation study, when you should do one, and whether you should pay for a new study if one was previously completed by the last property owner.

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How Often Can You Do A Cost Segregation Study?

One caveat of cost segregation is that you can only do one cost segregation study per property.

This applies even if you purchase a property, have a cost segregation study performed, and later remodel the property. If you purchase new assets or make improvements to your property, your CPA or tax preparer will be able to classify these assets and costs on your next tax return.

When Should You Do A Cost Segregation Study?

The best time to do a cost segregation study is the year the property is put into service. This is the same year that you purchase, construct, or remodel the property.

However, if you didn’t order a study in the first year, you haven’t missed out. You can have a cost segregation study done at any time with a look-back study.

See if a cost segregation study makes sense for your business with our cost seg calculator:

Cost Segregation Look-Back Studies

A cost segregation look-back study is done on a property that you have built, purchased, or remodeled in a previous tax year. This strategy allows you to claim catch-up depreciation on all qualifying assets put into service in prior years.

This catch-up depreciation is claimed by filing IRS Form 3115, Application For Change In Accounting Method. You are not required to file an amended tax return.

What If A Study Was Done By The Previous Property Owner?

The IRS recommends that commercial or investment property that has changed ownership undergo a new cost segregation study.

This applies even if the previous owner had a study completed in the same tax year the property changed ownership. Having a new cost segregation study performed ensures that the new owner’s unique tax situation is taken into consideration.

The Bottom Line On When To Do A Cost Segregation Study

Here are the key takeaways:

1. A cost segregation study can be done once per property by the same owner.
2. A new cost segregation study can be done if the property changes ownership.
3. Someone who owns multiple properties can have a study performed for each property; however, only one study per property is allowed.
4. If updates are made to the property following the cost segregation study, these costs can be classified and written off on tax returns by a CPA or tax preparer.
5. Ideally, a cost segregation study should be done the year the property is placed into service. However, this isn’t always feasible, so it is possible to have a look-back study done later.

All property owners should at least do their research and learn about the benefits of cost segregation to have a study completed either now or in the future.