What to Do With Your Cost Segregation Report

1. Save the PDF

The download link in your delivery email is a secure link that expires after 7 days. Download the report and save it somewhere you back up. If the link has expired, reply to the delivery email or write to support@rentalwriteoff.com and we will send a new one.

2. Check the property facts

The report is built on the details you gave us. Take two minutes to confirm these are right:

• The property address and the name of the owner.
• The purchase price and purchase date.
• The placed-in-service date, which is the date the property was first ready and available to rent.
• Any renovations or furnishings you told us about.

If something is off, reply to the delivery email and tell us what needs to change. It is much easier to correct the report now than after your return is filed.

3. Send the full report to your tax preparer

Send the whole PDF, not a summary. Your preparer needs two parts in particular:

• The asset class summary. This shows how much of the property falls into 5-year, 7-year, and 15-year property, and how much stays with the building. The building is depreciated over 27.5 years for a long-term residential rental, or 39 years for many short-term rentals and for commercial property. Your report states which applies. Shorter-lived property is deducted faster.
• The depreciation schedule. This shows the deduction for each year. Your preparer enters these figures on Form 4562, the depreciation form that is filed with your return.

For example, if the report identifies $60,000 of 5-year and 15-year property and that property qualifies for 100% bonus depreciation, your preparer can deduct the $60,000 in the first year. Without the report, the same $60,000 would be spread over 27.5 or 39 years along with the building.

The report stays in your files and your preparer's files. It is not attached to the return.

If your preparer has questions about how an item was classified, they can write to us directly.

If you file your own return with TurboTax

You can enter the report yourself when the property was first rented in the same tax year you are filing. The steps below describe TurboTax, and other tax software works the same way.

1. Open the rental property section of your return and go to the part for assets and depreciation.
2. Add each asset class from the report's summary as its own asset: the 5-year property, the 7-year property if any, the 15-year land improvements, and the building (27.5-year or 39-year, whichever your report shows). Use the dollar amount the report gives for each one.
3. Enter land as its own item. Land is not depreciated.
4. Give every asset the same placed-in-service date shown in the report.
5. When the software asks about bonus depreciation (TurboTax calls it the special depreciation allowance), answer for the 5-year, 7-year, and 15-year assets. The building does not qualify.
6. Compare the first-year depreciation total the software calculates with the first-year total in the report's depreciation schedule. They should match closely.

Do not also enter the full purchase price as a single asset. The amounts you enter for the separate classes and the land should add up to the total basis shown in the report, counted once.

Use a tax preparer for a look-back study. If the property was rented in an earlier tax year, the catch-up deduction requires Form 3115. TurboTax Online does not include Form 3115, and the desktop version can prepare it only in forms mode and generally cannot e-file it. A preparer who has filed Form 3115 before is the practical route.

A preparer is also worth the fee if you have rental losses you are not sure you can use, more than one property, or a state return that treats bonus depreciation differently.

4. If the property was rented in an earlier tax year

A study done after the first year of ownership is called a look-back study. The depreciation you could have claimed in earlier years is not lost. Your preparer claims it as one catch-up deduction on this year's return using Form 3115, the IRS form for changing a depreciation method. Earlier returns are not amended.

Form 3115 is included for eligible look-back studies. Your preparer reviews it and files it with your return. Read how a look-back study works.

5. Ask how much of the deduction you can use this year

The report sets the size of the deduction. How much of it lowers your tax bill this year depends on your situation. Three things to raise with your preparer:

• Passive loss rules. Rental losses usually offset rental and other passive income first. Losses you cannot use this year carry forward to later years. How the passive loss rules work.
• How the property is rented. Short-term rentals and owners who qualify as real estate professionals can be treated differently. See material participation for short-term rentals and real estate professional status.
• Your state. Some states do not follow the federal bonus depreciation rules, so the state deduction can be smaller in the first year.

6. Keep the report with your permanent tax records

Keep the report for as long as you own the property and for several years after you sell it. You will need it again when:

• You sell the property. Your preparer uses the report to work out depreciation recapture, the tax on depreciation you claimed. How recapture works.
• You replace a major component. If you replace a roof, flooring, or appliances, the report shows what the old item was worth on your books.
• The IRS or your state asks a question. The report documents how each amount was determined.

If the IRS asks about the study

Audit support is included with your report. Contact us as soon as you or your preparer receive a notice that concerns the study, and we will help explain the methodology and documentation. The Terms set out how long support lasts and what it covers.

Common questions after delivery

Do I send the report to the IRS?

No. Your preparer uses it to complete your return, and you both keep a copy.

My return for this year is already filed. What now?

Give the report to your preparer anyway. They will tell you whether to claim the deduction on next year's return or change the return already filed.

I made improvements after the report was delivered. Are they covered?

The report covers the property as of the information you submitted. Tell your preparer about later improvements so they are depreciated correctly.

Who do I contact with a question?

Reply to your delivery email, write to support@rentalwriteoff.com, or call 307-271-8741.

RentalWriteOff prepares cost segregation reports and does not provide tax advice. Your tax preparer decides how the report is used on your return.