There are limits in place for how often you can do a cost segregation study. Fortunately, there are no limitations when it comes to when the study is completed.
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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.
New to cost seg? If you’re a property owner who hasn’t gotten a cost segregation study yet, what are you waiting for? You can potentially save thousands of dollars with a cost segregation study. If you own commercial or investment property, start with a free feasibility analysis with one of the best cost segregation companies to see how much you can save on your next tax return.
Table of Contents
In most cases, a property owner will have one primary cost segregation study for a given property and ownership period. That said, cost segregation isn’t always a one-and-done exercise. If you later renovate, expand, or make significant improvements to the property, those costs are treated as new depreciable property.
In some cases, your CPA can classify those assets based on project records. In others — especially for larger renovations — a supplemental cost segregation analysis may help identify additional short-life assets and increase depreciation.
The best time to do a cost segregation study is usually the year the property is placed in service for rental or business use. That’s the cleanest time to identify short-life assets and maximize first-year depreciation. Just keep in mind that “placed in service” is the key tax concept, and it is not always the same as the purchase date or the date construction started.
Timing also matters more now for bonus depreciation. Under current law, many short-life assets identified through a cost segregation study may qualify for 100% bonus depreciation if they were acquired after January 19, 2025. For self-constructed property, the timing rules are more nuanced and can depend on when physical work began or when the 10% safe harbor was met.
However, if you didn’t order a study in the first year, you haven’t missed out. In many cases, you can still benefit from a cost segregation study later by using a look-back approach.
See if a cost segregation study makes sense for your business with our cost seg calculator:
A cost segregation look-back study is done after the year a property or improvement was placed in service. It can allow you to catch up on missed depreciation for qualifying assets identified after the fact.
This type of catch-up depreciation is often claimed through IRS Form 3115, which is used to change the accounting treatment of an item. In many cases, that means you can catch up on missed depreciation without amending prior returns.
When a property changes ownership, the new owner will often need a new cost segregation study. That’s because depreciation is based on the new owner’s purchase price allocation, basis, and facts — not the prior owner’s study.
Here are the key takeaways:
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.
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