Frequently Asked Questions

What is a cost segregation study?

A cost segregation study is an engineering-based analysis that separates a building's purchase or construction cost into its components and reassigns them from the default 27.5-year or 39-year recovery period to their correct 5-year, 7-year, and 15-year MACRS classifications. Because those shorter-life categories qualify for bonus depreciation, the reclassified amount is generally deductible in the first year.

Is a cost segregation study worth the cost?

Generally yes once depreciable basis exceeds roughly $500,000, assuming you can actually use the deduction in the current year. The analysis that matters is not the size of the deduction but whether the passive activity loss rules, basis limits, and excess business loss limitation allow you to deduct it now.

Can I do a study on a property I bought years ago?

Yes. A Form 3115 change in accounting method captures every missed deduction from the placed-in-service year in a single Section 481(a) adjustment claimed in the current year. No amended returns are needed and there is no three-year limitation.

What happens to the accelerated depreciation when I sell?

Personal property is recaptured as ordinary income under Section 1245 to the extent of gain, and building depreciation is subject to unrecaptured Section 1250 gain taxed at up to 25%. A 1031 exchange defers it, and holding until death eliminates it through the basis step-up under Section 1014.

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