FAQ

A cost segregation study is best done when you’ve recently purchased, built, or renovated a property to maximize tax savings from accelerated depreciation. Ideally, you should conduct it right after placing the property in service or before filing that year’s taxes. Significant renovations or improvements also warrant a study to reclassify those costs. Even if you’ve owned the property for a few years, a "catch-up" deduction is available without needing to amend previous returns.

Cost segregation can be highly beneficial for short-term rentals, depending on your specific circumstances. If you're able to apply bonus or accelerated depreciation against your active income (assuming the average rental period is less than 7 days), this strategy can unlock substantial tax savings. If you have a long-term strategy, like holding the property or utilizing a 1031 exchange, you can further minimize the recapture risks. Overall, cost segregation can offer significant tax benefits for short-term rentals, especially if you're actively involved in managing the property.

Yes, you can still perform a cost segregation study in 2025 for a property that was placed in service in 2024. As long as the property was placed in service during or before the tax year you’re filing for, the study remains valid. The important thing is to complete and submit the cost segregation report before you file your taxes for the relevant year. This allows your CPA to optimize your property’s depreciation and maximize your tax savings for that filing.

No, cost segregation studies can also offer tax benefits at the state and local levels, depending on the specific tax laws and regulations in your area. While federal tax savings are the most common outcome, state and local tax codes may also provide opportunities for additional deductions. It’s important to consult with a tax advisor who is familiar with local regulations to maximize your savings.

If you buy a commercial property for $1 million, it would typically be depreciated over 39 years, giving you about $25,640 in deductions annually. With a cost segregation study, you could reclassify certain components of the property to shorter depreciation schedules, potentially allowing you to deduct up to $200,000 much faster, even in the first year. This accelerated depreciation boosts your immediate tax savings and improves cash flow significantly.

Yes, a Cost Segregation Study can still save you money even if you acquired your property through a 1031 exchange. A 1031 exchange defers capital gains taxes by rolling the proceeds from the sale of one property into a new investment. When you apply a Cost Segregation Study, you accelerate depreciation on certain components of the new property, which can reduce your taxable income significantly in the years following the exchange.

Cost segregation is particularly beneficial for commercial property owners, those owning office buildings, retail spaces, warehouses, hotels, or other commercial real estate. Residential property owners, including those who own apartment complexes, multi-family units, and even short-term rental properties, can also leverage cost segregation, provided the property qualifies based on usage. Even businesses with significant property holdings, such as corporate offices, manufacturing plants, or warehouses, can take advantage of cost segregation to optimize their capital allocation. Essentially, anyone with substantial investments in real estate can benefit from this tax savings strategy, making it an effective tool for potential capital reinvestment.

The duration of a cost segregation study depends on the property's size and complexity, but it generally takes a few weeks to a couple of months. This includes everything from the initial consultation to the delivery of the final report. The timeline will be tailored to your specific property needs.

When selecting a cost segregation provider, look for a firm with experienced ASCSP credentialed professionals. Their engineers and tax experts should specialize in cost segregation. Ensure they offer IRS-compliant reports and provide audit protection. The reports should be detailed and tailored to your property, not generic. Compare their pricing to the potential tax savings for a strong return on investment, and make sure they offer ongoing support and clear communication throughout the process.

Certain assets such as building components, land improvements, equipment, fixtures, and interior finishes can be reclassified. These are assets that generally have shorter depreciation schedules compared to the building itself, allowing for faster tax deductions.

When conducted by qualified professionals who follow IRS guidelines, cost segregation studies are recognized and accepted as legitimate tax planning strategies. Proper documentation and compliance can minimize audit risks while securing substantial tax savings.

Yes, cost segregation studies can be performed retroactively. Property owners can apply these studies to properties that were placed in service in prior years. This process, known as a look-back study, allows you to capture depreciation deductions that may have been missed, which can result in significant tax savings. In many cases, this retroactive application can lead to "catch-up" depreciation adjustments, possibly generating tax refunds or reducing current tax liabilities.

Property owners who have acquired, built, or renovated both commercial and residential real estate can often benefit from a cost segregation study. This includes owners of office buildings, warehouses, retail spaces, apartment complexes, and other investment properties. If you've invested in improving or purchasing property, this study could save you money.

Cost segregation accelerates depreciation deductions by identifying assets within your property that can be depreciated over shorter periods (5, 7, or 15 years). This strategy reduces taxable income and results in significant tax savings, improving cash flow and boosting your return on investment.

No. Cost segregation can be applied to both new and existing properties, including those that have been renovated or expanded. Whether your property is newly constructed or recently acquired, it’s worth considering a cost segregation study to maximize potential tax benefits.