What is the R&D Tax Credit?

The R&D tax credit offers a dollar-for-dollar reduction in a company's tax liability, or payroll taxes, aiming to encourage innovation and technological advancements in the U.S. It is calculated based on a company's eligible wages, technical consultants, and consumables for experimentation. The federal tax credit averages 14% of eligible costs.

Do I Qualify for R&D Tax Credits?

R&D incentives are available for a variety of activities and expenses. These include software development, payroll expenses related to R&D activities, the creation of new manufacturing processes, and product innovation. Activities that would otherwise be considered 'day-to-day operations,' such as designing new products or analyzing market trends, may be eligible under this credit!

What is the Four-Part Test for R&D Tax Credit?

To qualify, the IRS has a four-part test: 1) New or Improved Business Component, 2) Activities Technological in Nature, 3) Elimination of Uncertainty, and 4) Process of Experimentation. Most companies don't realize their current development and research activities might already qualify.

Do Start-Ups Qualify for R&D Tax Credit?

Yes! R&D incentives can be ideal for startups—particularly those of a technical nature, such as in the fields of computer science or pharmaceuticals. The credits can deliver a financial windfall to qualifying taxpayers.

Depreciation Recapture
Study (1245X)

Protect More of Your Sale Proceeds

Manage depreciation recapture and ensure accurate sale allocations between personal property and real property after an asset sale.

Recapture Focus

§1245 Allocation

Personal property revalued at disposition

Study Type

Reverse
Cost Segregation

Applies cost segregation principles at sale

CPA Ready

Tax Return Support

Schedules and workpapers provided

What Is a Depreciation Recapture Study?

A Depreciation Recapture Study, commonly referred to as a 1245X Study, is an engineering-based analysis performed at the time of sale to:

Fair Market Value

Determine the fair market value of Section 1245 personal property at disposition

Defensible Allocation

Support a defensible allocation between Section 1245 and Section 1250 assets

Income

Reduce ordinary income exposure tied to depreciation recapture

CPA-Ready

Provide CPA-ready documentation aligned with IRS guidance

It applies cost segregation principles in reverse, at disposition rather than acquisition.

Key Benefits

Why Perform a 1245X Study?

Selling Property After Cost Segregation Can Trigger Excess Recapture

If you previously completed a cost segregation study and are now selling the property, you may be facing more depreciation recapture than required.

When properties are sold, many owners and CPAs simply carry forward the original cost segregation allocations to calculate recapture. That approach ignores a critical reality: personal property loses value over time.

A Depreciation Recapture Study corrects this by reallocating sale value based on fair market value and remaining economic life at disposition, not original acquisition assumptions.

The Problem

Why a Reverse Cost Segregation Is Often Higher Than It Should Be

When a building is sold, previously accelerated depreciation may trigger:

In many cases, the original cost segregation allocations are simply carried forward to calculate recapture. However, the fair market value of personal propertyat the time of sale is often lower than its original allocated basis.

Without a proper engineering-based disposition analysis, owners may pay more recapture tax than necessary.

This is especially relevant if you:

Our Process

How the Process Works?

Step 1

Pre-Sale Review

We review the original cost segregation study, depreciation schedules, capital improvements, and any partial asset dispositions. If the property is under contract, we also review the purchase agreement allocations.

Step 2

Engineering and Valuation Analysis

Our team evaluates the remaining economic life and fair market valueof personal propertycomponents at the time of sale. We then recalculate the appropriate allocationbetween Section 1245 and Section 1250 categories.

Step 3

Tax Reporting Support

You receive a formal report with allocation schedules, supporting documentation, and CPA-ready workpapers. We coordinate directly with your tax advisor as needed.

Property Types that Benefit from a 1245X

Nationwide Expertise Across All Properties

Multifamily

A 1245X depreciation recapture study identifies accelerated components in multifamily properties to maximize deductions while managing future recapture exposure.

Hotels

Hotels benefit from cost segregation recapture by properly classifying short-life assets to increase near-term depreciation and optimize recapture treatment on disposition.

Self-Storage

A 1245X analysis on self-storage facilities isolates qualifying personal property to accelerate depreciation and reduce ordinary income recapture risk.

Mobile Home Parks

Mobile home parks use 1245X studies to reclassify infrastructure assets, improving depreciation efficiency and recapture outcomes.

Retail Centers

Retail centers leverage reverse cost segregation studies to separate building components and enhance tax deferral without overexposing recapture.

Medical Office Buildings

A 1245X study for medical office buildings identifies specialized systems and build-outs to accelerate depreciation while maintaining compliant recapture positioning.

Timing Matters

The ideal time to perform a Depreciation Recapture Study is:

Once a return is filed without proper allocation, options may become more limited and more complex.

Why Engineering Matters

The IRS Cost Segregation Audit Technique Guide emphasizes the importance of component-level analysis, engineering methodology, and defensible documentation.

A spreadsheet allocation without engineering support may not withstand scrutiny.

Our team combines engineering expertise with tax technical knowledge to produce well-documented, supportable results.

Nationwide Service

We Serve Clients Nationwide

ETS serves investors in all 50 states and is the nation’s leading engineering-based tax advisory firm.

Find Your Nearest Office

Our team of specialists are strategically located throughout the United States, allowing Engineered Tax Services to provide expert service no matter where your organization is situated.

Common Questions

Frequently Asked Questions

Everything you need to know about Depreciation Recapture and how they can benefit you.

Is this the same as reverse cost segregation?

Yes. It applies cost segregation principles at disposition rather than acquisition.

Is this aggressive?

No. It ensures gain character is calculated accurately based on fair market value and remaining useful life.

Can this be done after closing?

Often yes, but it should ideally be completed before filing the tax return reporting the sale.

Does this apply if I did not perform cost segregation originally?

In certain situations, a retrospective analysis may still be beneficial. We can evaluate your specific facts.

Does this replace my CPA?

No. We work alongside your CPA and provide the engineering support necessary for proper reporting.

Get Started Today

Selling a Property Within the
Next 12 Months ?

Request a recapture exposure review before finalizing your tax projections.

We offer a preliminary pre-sale assessment to help determine whether a full reverse Cost Segregation Study is warranted.

How can we help you?

Depreciation RecaptureStudy (1245X)