Frequently Asked Questions
Browse answers about cost segregation, real estate tax strategies, and depreciation.
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Our Form 3115 Preparation service is built to do more than “fill out a form.” We handle the work that typically drives the time, risk, and back-and-forth when a method change is needed after cost segregation.
Here’s what’s included:
- A fully prepared Form 3115 that is consistent with the method change and the cost segregation results
- Completion of the Section 481(a) adjustment calculation, which is your cumulative “catch-up” depreciation amount between the prior depreciation already taken and the results of the cost segregation study
- Includes detailed supporting statements/attachments that explain the accounting method change being made, which explains in detail the comparison to the prior depreciation already taken, all done in a CPA/IRS-ready format
- CPA-ready support — we are available for any questions that your CPA may have regarding the Form 3115 itself, but please note that we cannot assist with the tax filing process
Many real estate-specific CPAs can complete Form 3115, but the specialized, time-consuming part is calculating and documenting the Section 481(a) adjustment correctly and packaging the method change so it’s consistent, defensible, and easy to file. That’s the value this service is designed to deliver.
Rapid Report works best for straightforward residential properties. For multi‑unit buildings, it’s intended specifically for duplexes, triplexes, and 4‑plexes where the units are identical or substantially similar across the building.
Rapid is not intended for multifamily properties with different layouts, mixed uses, or varying placed‑in‑service dates. Rapid also does not support splitting one property into separate reports (for example, a main house and an ADU).
If your property includes units with different layouts, placed-in-service dates, or configurations, you’ll need to purchase a separate report for each unique unit, or consider upgrading to a Fully Engineered Study.
As part of the process, we will coordinate an in-person inspection conducted by a trained inspector who captures detailed visual documentation, primarily through photographs, of the property’s condition, components, and improvements for our engineering team.
The inspection focuses on capturing detailed visuals of the property to support our engineering analysis.
The inspector will need full access to all readily accessible interior and exterior areas, excluding the roof and any areas that are not easily accessible. We recommend having someone from your team present to help facilitate access if needed.
The length of the inspection will vary depending on the size and complexity of the property.
This information usually comes from your CPA or accounting records, not from tax forms themselves. Most tax preparers maintain a depreciation schedule or fixed asset report (often generated from their accounting or tax software) that shows the property’s original basis and depreciation taken to date.
If you don’t have access to this schedule, your CPA can typically pull it directly from their system or accounting software. This information is important so the cost segregation study correctly accounts for any depreciation already taken and avoids double-counting.
According to the Cost Segregation Audit Technique Guide, the IRS requires that we "reconcile the cost basis of property in a study to the cost basis contained in the taxpayer's books and records" and verify how any prior accelerated depreciation affects your remaining basis.
When you've already claimed depreciation and filed taxes on a property, you've established what the IRS calls an "adopted method of accounting" that includes your depreciable basis, recovery period (27.5 or 39 years), and depreciation method.
According to the Cost Segregation Audit Technique Guide, any cost segregation study must be "easily reconcilable to the taxpayer's depreciation or fixed asset schedules". We review your existing depreciation schedules to ensure our cost segregation report properly ties to your established tax position and to identify your remaining depreciable basis after accounting for depreciation already taken.
This review is critical because we need to determine if you've already claimed accelerated depreciation benefits like Section 179 expensing, bonus depreciation, or 179D energy efficiency deductions - each of which reduces your remaining basis dollar-for-dollar and diminishes the potential benefits of cost segregation.
During our review, we also check for any errors your tax preparer may have made in the original setup, such as using the wrong recovery period or depreciation method. If we find errors, we can only recommend corrections through Form 3115 (Application for Change in Accounting Method) - not by amending prior returns.
As the IRS clearly states: "Amended returns or claims for adjustment, based on a cost segregation study performed after the original return was filed...should generally be disallowed on the basis that the taxpayer is attempting to make a retroactive method change". The goal is to maximize your tax benefits within the framework of your existing filings while ensuring everything can withstand IRS scrutiny.
Your short-term rental is classified as 39-year nonresidential real property because of the IRS's "transient use" rule. According to IRS Publication 946, while residential rental property typically depreciates over 27.5 years, there's a critical exception: dwelling units do NOT include "a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis."
The IRS considers properties used on a "transient basis" to be those with average guest stays of less than 30 days, which captures most Airbnb and VRBO properties. Even though your property might be a single-family home or condo that looks exactly like a traditional rental, if you're operating it as a short-term rental with typical stays of a few days or weeks, it's treated like a hotel for tax purposes.
Since you're stuck with the slower 39-year base depreciation, cost segregation studies become even more valuable for STR owners. You can typically reclassify 20-35% of your property's components into 5, 7, or 15-year assets, partially offsetting the disadvantage of the 39-year classification.
For renovation projects, we ideally request the same types of documentation used for new construction, such as contractor invoices, AIA payment applications (Forms G702/G703), and detailed cost ledgers. That said, we understand that smaller residential renovations often don’t have this level of formal documentation.
In those cases, we provide a template spreadsheet designed specifically to help you organize renovation expenses. Estimated or ballpark figures are acceptable, although more detailed information can help maximize your depreciation benefits. You do not need to submit every individual receipt, but we recommend keeping them on file as supporting documentation in the event of an IRS inquiry.
If renovation costs have already been expensed or depreciated on prior tax returns, or if you plan to do so, those amounts should not be included again in the cost segregation study, as this would result in double-counting.
No, you don't need to complete your cost segregation study before December 31st. The critical deadline is your tax filing deadline, not the calendar year-end. As long as the study is completed before you file your tax return for the year you want to claim the benefits, you can take full advantage of the accelerated depreciation.
For example, if you placed a property in service in 2024, you can conduct the study anytime in 2025, as long as it's completed before your 2024 tax return filing deadline, April 15th for individuals (or October 15th with extension), or March 15th for partnerships and S-Corps (September 15th with extension). The study will analyze your property as of its placed-in-service date and provide depreciation schedules starting from that date.
If you've already filed your tax return without a cost segregation study, you still have options. You can file an amended return for that year if you haven't yet filed the following year's return. Otherwise, you'll need to file Form 3115 (Application for Change in Accounting Method) to adjust your depreciation going forward and capture the "catch-up" depreciation you missed.
The flexibility in timing allows you to complete renovations, gather documentation, and work around your schedule without rushing to meet a year-end deadline. This also means you can strategically time the study based on your tax planning needs and cash flow considerations, making it a more manageable process that fits your business timeline rather than being forced by an arbitrary calendar deadline.