Frequently Asked Questions

When should I get a cost segregation study done?

The best time to perform a cost segregation study is within the tax year that the building is purchased or construction is completed.  If you are planning on renovating your property we recommend performing a cost seg prior to those renovations.

I just learned about cost segregation and would like to do it on prior deals. How far back can they be done?

You can have a look-back study done on assets acquired as far back as 1987 and claim the resulting write-offs using the 3115 Automatic Change without amending prior-year tax returns.

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There are diminishing returns to performing a study the longer you own and depreciate a property. Contact us to determine if your property is a fit for a cost segregation study.

What do your services cost?

We pride ourselves on offering affordable cost segregation studies for every budget and property type. Our self-directed Rapid Report (available for smaller residential properties, up to 4 units) is available for $895. Fees for our Fully Engineered Study vary based on square footage, property type and complexity. Compare our cost segregation study services or request a free proposal for your property here.

I am planning to sell my property soon. Does a cost segregation study make sense for me?

If you are planning to sell the property in a taxable transaction a cost segregation study may not make sense because of recapture.


We generally recommend you hold a property for at least 3-5 years. However, if you are planning to enter into a like-kind exchange (non-taxable transfer of your property for another property) you will not have depreciation recapture issues until you sell the replacement property.

What types of properties are eligible for Cost Segregation?

Any type of income-producing property placed into service after 1986 qualifies for cost segregation. We frequently work on residential such as short-term rentals as well as commercial projects.

I’m a high W2 earner, can I Cost Seg my property to offset my W2 taxes?

It's essential to differentiate between active income, earned through employment or business activities, and passive income, derived from investments or rental properties. Unless you are a Real Estate professional, you may not apply losses from a Cost Segregation to offset your W2 Income.

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However, in the case of short-term rentals, income generated from renting out a property is generally considered passive. Yet, if the taxpayer actively manages and maintains the rental property, there may be an opportunity to offset this passive income against their active income. Consulting with your tax professional is advisable to determine your eligibility for such adjustments.

I bought and placed a property in service in 2023, can I still do the cost seg now in 2024?

Yes, The cost segregation study serves as a valuable tool for your CPA to optimize property depreciation. It is a one-time process with no specific timeframe for completion. If you intend to leverage the study for a particular tax filing, it remains valid for that tax year as long as the property was placed in service within that same tax year or prior. The report holds its validity as long as it is submitted before you file your taxes, irrespective of the year in which the study was conducted.

Why should I file Form 3115 as a real estate investor?

Real estate investors may need to file IRS Form 3115 if they're switching depreciation methods or correcting past errors. After completing a cost segregation study, which reclassifies components of your property to shorter depreciation schedules, you will need to use Form 3115 to formally request a change in accounting method with the IRS, if you already filed taxes on the property using straight line depreciation in previous tax years. This allows you to apply accelerated depreciation without having to amend previous tax returns, unlocking potential tax savings for current and future years. Filing this form ensures compliance with IRS regulations while maximizing your deductions for assets that qualify for faster write-offs. It’s a crucial step in optimizing your tax strategy and should be handled carefully to avoid penalties.

Can Form 3115 help me take advantage of a cost segregation study?

Absolutely. After completing a cost segregation study, Form 3115 enables you to change your depreciation method and accelerate deductions on specific components of your property. By adjusting your asset classification, you can claim larger deductions in the earlier years of ownership, boosting your cash flow.

What happens if I don’t file Form 3115 when I need to?

Failing to file Form 3115 when a change in accounting method is required can result in missed tax benefits, potential penalties, or even IRS scrutiny. Without filing this form, you may be unable to recover lost deductions or correct past errors, which could affect your long-term tax strategy and financial performance.

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Does RE Cost Seg file IRS Form 3115 on behalf of clients?

RE Cost Seg completes the Form 3115 preparation as well as the required attachment of statements and 481(a) calculation. You and your tax preparer must sign and:

  • Attach the original Form 3115 to the filer's timely filed (including extensions) federal income tax return for the year of change.
  • File a copy of the signed Form 3115 (duplicate copy) with the IRS National Office at the address provided in the Address Chart for Form 3115, later, no earlier than the first day of the year of change and no later than the date the original is filed with the federal income tax return for the year of change.
  • Refer to IRS Guidelines on page 2 of Form 3115 on when and where to file.

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Is form 3115 preparation included with my cost segregation study?

Our Form 3115 preparation service is an optional add-on service for each cost seg study you purchase from RE Cost Seg. Request a free proposal or contact us for more detailed information on your properties.

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