The absolute best time to conduct a Cost Segregation study is as soon as possible after purchasing or constructing a property, as this allows you to immediately apply the accelerated depreciation to your current tax year and start enjoying the cash flow benefits right away.
However, if you already own the property and missed the initial opportunity, it is still not too late to conduct a study. You can use IRS Form 3115 (Change in Accounting Method) to “catch up” on all missed depreciation from prior years and claim it in the current year, without the need to amend previous tax returns. While the earlier you do it, the more years of tax savings you'll have to leverage, the flexibility of the Look-Back Study makes Cost Segregation valuable at almost any stage of property ownership.
Cost Segregation Timing: Key Facts
- Optimal Time: As soon as possible after purchasing or constructing a property.
- Benefit of Optimal Timing: Allows you to immediately apply accelerated depreciation to your current tax year and start enjoying cash flow benefits right away.
- Catch-Up Option: If you already own the property, you can still do a study retroactively using a Look-Back Study.
- IRS Form: Missed depreciation is claimed on IRS Form 3115 (Change in Accounting Method).
- Benefit of Catch-Up: You catch up on all missed depreciation in the current year without needing to amend prior tax returns.
