A common question we get is about the best time to perform a cost segregation study. While there are benefits to doing it early, you might be surprised by the flexibility the IRS allows.
The Ideal Time: The Year You Purchase
The most straightforward approach is to perform a study in the same year you place the property in service. This allows you to start taking the accelerated depreciation deductions on your very first tax return for that property.
The "Look-Back" Study: It's Not Too Late!
What if you bought a rental property two, five, or even ten years ago and have been using the standard 27.5-year depreciation method? Good news: you haven't missed out. The IRS allows you to perform a "look-back" study. This means you can commission a study today for a property you've owned for years. The study will calculate the difference between the depreciation you've taken and the depreciation you *could have* taken. You can then claim that entire catch-up amount in a single year by filing IRS Form 3115. This can result in a massive, one-time tax deduction.