Real Estate Cost Segregation in Nevada

Any type of income-producing property placed into service after 1986 qualifies for cost segregation, making this tax strategy widely applicable across the real estate spectrum. We frequently work with both residential properties, including single-family rentals, multi-family buildings, and short-term rentals like Airbnb properties, as well as commercial projects ranging from office buildings and retail centers to industrial facilities and medical offices.

The key requirement is that the property must be used for business or investment purposes rather than as a personal residence. This includes properties you actively manage as rentals, those held for investment appreciation, and buildings used in your trade or business.

Properties acquired through various means including purchases, 1031 exchanges, inheritances, or new construction all qualify, as long as they meet the income-producing requirement and were placed in service after 1986.

We pride ourselves on offering affordable cost segregation studies tailored to every budget and property type. Our self-directed Rapid Report, designed for smaller residential properties up to 4 units with a depreciable basis under $800,000 and capital improvements under $50,000, is available for $950.

For properties that don't meet these criteria and/or require more detailed analysis, our Fully Engineered Study starts at $2,500 for residential properties and $3,025 for commercial properties. The final fee varies based on square footage, property type, and complexity of the analysis required. Rush service pricing for pending tax deadlines may apply and are subject to capacity availability.

Both services include full IRS audit protection and are performed by qualified engineers following IRS guidelines. To understand exactly what a cost segregation study on your investment property would cost, we provide free proposals that include fee quotes along with estimated depreciation benefits, allowing you to evaluate the return on investment before committing to the study.

Compare our cost segregation study services or request a free proposal for your property here.

The optimal time to perform a cost segregation study is within the tax year that the building is purchased, constructed, or substantially renovated. This timing allows you to maximize first-year depreciation benefits without needing to file additional forms with the IRS. When you conduct the study in the same year as acquisition or placement in service, you simply use the accelerated depreciation schedule from the start, avoiding the need for Form 3115 to change accounting methods.

However, this doesn't mean you've missed the opportunity if you've owned the property for several years. Look-back studies can capture missed depreciation from prior years through a Section 481(a) adjustment, bringing all that accumulated benefit into the current tax year. The key is completing the study before filing your tax return for the year you want to claim the benefits. For specific tax deadlines, we maintain strict cut-off dates to ensure quality delivery.

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You can perform a look-back cost segregation study on properties acquired as far back as 1987, when the current depreciation rules under MACRS went into effect. Through filing Form 3115 for an automatic accounting method change, you can claim all the accumulated missed depreciation as a Section 481(a) adjustment in the current tax year without amending any prior-year tax returns.

This means if you've been depreciating a property using straight-line depreciation for several years, you can still capture the benefits of accelerated depreciation you would have received had you performed cost segregation from the beginning. However, there are diminishing returns the longer you've owned and depreciated a property. Properties owned for more than 15 years may have limited remaining benefits, especially if they've already been substantially depreciated. The cost-benefit analysis becomes less favorable as the remaining depreciable life decreases, though high-value properties or those with significant improvements may still justify the study cost.

If you're planning to sell your property in the near future, the decision to pursue cost segregation requires careful consideration of depreciation recapture rules. When you sell a property after taking accelerated depreciation, you'll face recapture tax on the difference between accelerated and straight-line depreciation at ordinary income rates, which can be as high as 37%.

This recapture can significantly reduce or eliminate the benefits of cost segregation if the sale occurs too soon. We generally recommend holding a property for at least 3-5 years after performing cost segregation to ensure the time value of money and tax deferral benefits outweigh the eventual recapture tax. The exact break-even point depends on your tax rates, the amount of accelerated depreciation, and your cost of capital.

However, if you're planning a 1031 like-kind exchange rather than a taxable sale, cost segregation becomes much more attractive. In a 1031 exchange, you defer the recapture tax by rolling the basis into your replacement property, allowing you to continue benefiting from accelerated depreciation without immediate tax consequences. Even if you're selling within 2-3 years, cost segregation might still make sense if you're in a high tax bracket now but expect lower rates at sale, or if the property has minimal personal property that would be subject to higher recapture rates.

As a high W-2 earner, your ability to use rental property losses from cost segregation to offset wages depends on specific IRS rules regarding passive activities. Generally, rental activities are considered passive, and passive losses cannot offset active income like W-2 wages unless you qualify for specific exceptions.

The most comprehensive exception is achieving Real Estate Professional status, which requires spending more than 750 hours annually and more than half your total working time in real estate activities, plus materially participating in your rental properties. This is often difficult for high W-2 earners with full-time jobs to achieve. However, a more accessible option for many is the short-term rental exception (also known as the short-term rental loophole).

If your property has an average guest stay of 7 days or less, it's not considered a passive rental under IRS rules. By materially participating in the property's operation, which can be achieved through various tests including working 100-plus hours annually with no one else participating more, you can treat the income and losses as active, allowing offset against your W-2 income. The $25,000 active participation exception for long-term rentals phases out completely at $150,000 of modified adjusted gross income, making it unavailable to most high earners.

Even if you can't immediately use the losses against W-2 income, cost segregation still provides value by creating suspended passive losses that offset future passive income, reduce taxable rental income in profitable years, and become fully deductible when you sell the property. We strongly recommend consulting with a qualified tax advisor to determine your specific eligibility and develop the optimal strategy for your situation.

Yes, you can absolutely perform a cost segregation study in 2025 for a property placed in service in 2024. The cost segregation study is a valuable tool that provides your CPA with the necessary documentation to optimize property depreciation, and it's a one-time analysis that remains valid indefinitely. There's no requirement that the study be completed in the same calendar year as the property acquisition or placement in service. As long as the study is completed before you file your tax return for the year you want to claim the benefits, you can apply the accelerated depreciation.

The report will analyze the property as of its placed-in-service date in 2024 and provide depreciation schedules starting from that date. Your CPA will use this information when preparing your 2024 return, regardless of when in 2025 the study is actually completed, provided all deadlines are met.

Bonus depreciation allows immediate expensing of qualifying assets identified in your  property through a cost segregation study. Under current law, known as the Big Beautiful Bill, properties acquired after January 19, 2025, qualify for 100% bonus depreciation through December 31, 2029. This applies to all 5, 7, and 15-year property classifications identified in the study.

For properties acquired before this new law, bonus depreciation followed a phase-out schedule:100% for assets placed in service between 2018 and 2022, 80% for 2023, and 60% for 2024.

If you did not take advantage of bonus depreciation in a prior year, a cost segregation study can still unlock those benefits retroactively. By filing a Form 3115 with the IRS, you can “catch up” on missed depreciation — including bonus depreciation — in the current tax year without amending past returns.

The virtual inspection is an essential part of the Fully Engineered Study, designed to be both thorough and convenient. It is conducted over a video call (via platforms such as Google Meet or Zoom) and typically lasts 30–60 minutes, depending on the property’s size.

During the session, a person with property access — such as a property manager, tenant, or contractor — uses a smartphone to guide our Site Visit Specialist through the property. The specialist provides step-by-step instructions to ensure all necessary areas and components are properly documented.

For those who prefer an in-person visit, we also offer an on-site inspection option starting at $600, depending on the property's size and complexity.

The documentation requirements for a cost segregation study are straightforward. Essential documents include your closing statement or HUD-1 settlement statement, any existing depreciation schedule, and a cost ledger for capital improvements in spreadsheet format.

While not required, several documents can be helpful if available, including property appraisals, floor plans or architectural drawings, photos of the property. You don't need to provide individual receipts, though you should keep them for backup purposes.

There are two study options based on property characteristics. The Rapid Report ($950) suits properties with depreciable basis under $800K, capital improvements under $50K, and residential properties under 3,500 sq ft—ideal for single-family homes, condos, and small multifamily. It uses a detailed questionnaire instead of inspection, with 5-10 business day turnaround.

The Fully Engineered Study (from $2,750) is required for properties exceeding these limits, all commercial properties regardless of size, and renovations over $50K. It includes virtual or on-site inspection with detailed component analysis and takes 15-20 business days. The key difference is methodology: Rapid Report uses software-based questionnaire analysis while Fully Engineered includes comprehensive site inspection, document review, and detailed engineering analysis. Both are IRS-compliant with full audit protection.

Depreciation amounts vary significantly based on property type and specific characteristics. Typically, a cost segregation study can reclassify 20-30% of a property's depreciable basis to shorter recovery periods. Residential properties usually see 15-25% acceleration, while commercial properties often achieve 20-35% acceleration.

Properties with significant improvements can see even higher percentages. Several factors affect these results, including land value allocation where lower allocations provide better results, the quality of finishes and fixtures throughout the property, the presence of specialized systems, the amount of site improvements like parking and landscaping, and any recent renovations or capital improvements that have been made.

While there's technically no limit to how far back you can perform a look-back study, practical considerations apply. You can capture depreciation from all open tax years, typically the most recent three years, and can even capture benefits from closed years through a Section 481(a) adjustment on Form 3115. However, documentation availability tends to decrease over time, making older studies more challenging.

The cost-benefit analysis becomes less favorable for older properties since depreciation already taken reduces the remaining benefit. The recommended approach is to focus on properties placed in service within the last 15 years, prioritizing higher-value properties first. You should evaluate the remaining depreciable life of the property and confirm that adequate documentation is available before proceeding with older properties.

Comprehensive audit support is provided at no additional cost with every study. This coverage includes full IRS audit defense with written responses to any IRS inquiries and expert witness testimony if needed. Our team maintains direct communication with your CPA throughout any audit process and provides complete documentation of our methodology. This support continues for as long as the study remains valid, regardless of how many years pass.

Our track record speaks to the quality of our work, with over 10,000 studies completed and less than 0.1% ever being audited. We maintain a 100% success rate in defending the audits that have occurred. Both Rapid and Engineered reports are equally defensible, and recordings of virtual inspections are available as evidence if ever needed.

While audit rates for properly prepared cost segregation studies are extremely low, certain factors may increase IRS scrutiny. Red flags include excessive reclassification percentages that seem unreasonable for the property type, inconsistent treatment across similar properties in your portfolio, poor or missing documentation, use of non-qualified preparers, and overly aggressive land valuations.

Best practices to avoid audit issues include always using qualified professionals with engineering expertise, maintaining detailed documentation of all assumptions and methodologies, following the IRS Cost Segregation Audit Technique Guide, being consistent in your approach across properties, and keeping thorough engineering justification for all reclassifications.

Whether you need real estate professional status depends on your income sources and how you plan to use your depreciation benefits. To qualify as a real estate professional, you must spend at least 750 hours annually in real estate activities and more than half of your total working time must be in real estate. You also need to materially participate in your rental activities. Achieving this status allows you to offset W-2 income with rental losses, which can be extremely valuable.

However, there's an important alternative for those who can't meet these requirements. If you operate short-term rentals and materially participate with at least 100 hours annually, you can offset active income without achieving real estate professional status. For those who don't qualify under either scenario, passive losses can only offset passive income, though unused losses carry forward indefinitely and can be used in future years.

The recommended holding period to maximize benefits from a cost segregation study is 3-5 years minimum, with 5 or more years being ideal to avoid significant recapture issues. While 2 years is the absolute minimum for smaller properties, shorter holding periods reduce the overall benefit. When you sell a property after accelerated depreciation, recapture rules apply.

Accelerated depreciation taken on personal property is recaptured at ordinary income tax rates, while standard straight-line depreciation is recaptured at a maximum 25% rate. This recapture can be deferred through a 1031 exchange if you're acquiring a replacement property. Despite the recapture considerations, the benefits of accelerated depreciation typically outweigh the recapture tax if the property is held for at least 3 years, due to the time value of money and the deferral benefit.

The timeline depends on the type of study you choose:

Rapid Report: Once you’ve made the payment and completed the online questionnaire, the process usually takes about 5–10 business days. This includes time for our engineering team to review the information (about 3–5 days) and prepare your final report (around 2 days).

Fully Engineered Study: For a fully engineered analysis, the clock starts after you’ve submitted all the required documents and completed the virtual inspection. From there, the study typically takes about 15–20 business days (roughly 3–4 weeks) — including 10–15 days for the engineering work and 2–3 days to finalize and deliver your report.

If you need results sooner, we also offer a rush option with a 5-business-day turnaround, depending on availability during busier times of the year.

Distinguishing between repairs and capital improvements is crucial for tax treatment and cost segregation eligibility. Capital improvements that qualify for cost segregation include betterments that improve the property beyond its original condition, restorations that return property to working order after it has fallen into disrepair, and adaptations that ready the property for a new or different use.

Examples include new HVAC systems, roof replacements, additions to the building, and comprehensive kitchen or bathroom remodels. In contrast, repairs that are deductible in the current year include routine maintenance activities, fixing existing components without upgrading them, painting, patching, minor replacements, and work that simply keeps the property in ordinary operating condition.

Several safe harbor elections can simplify these determinations, including the de minimis safe harbor allowing immediate expensing of items under $2,500 or $5,000 with an applicable financial statement, the routine maintenance safe harbor for qualifying maintenance activities, and the small taxpayer safe harbor for buildings with an unadjusted basis under $1 million.

Yes, cost segregation applies to leasehold improvements with some special considerations. Leasehold improvements are depreciated over 39 years for nonresidential property, or over the lease term if it's shorter than the applicable recovery period. Qualified Improvement Property may qualify for bonus depreciation under current law, making it particularly attractive for cost segregation.

Tenant improvements can be studied regardless of who pays for them, and the fact that improvements will eventually revert to the landlord doesn't eliminate the current tax benefits for the tenant. For ground leases, improvements built on leased land qualify for cost segregation using the appropriate recovery periods regardless of the lease term. However, you should consider whether certain costs should be amortized over the lease term rather than depreciated.

State treatment of cost segregation and accelerated depreciation varies significantly across jurisdictions. Some states don't conform to federal depreciation rules and require separate depreciation schedules using different methods or recovery periods. Bonus depreciation rules particularly vary, with some states allowing full federal bonus depreciation, others allowing partial amounts, and some allowing none at all.

Many states have decoupling provisions that became effective at various points over the past decade. These differences require careful planning, including reviewing each state's specific rules where you have tax obligations, potentially needing state-specific considerations in your study, addressing multi-state allocation issues for properties or businesses operating in multiple states, and tracking the growing differences between federal and state tax basis. Professional guidance is often essential for multi-state property owners.

Healthcare properties have unique aspects that often make them excellent candidates for cost segregation. These properties typically contain specialized electrical and plumbing systems installed specifically for medical equipment, medical gas systems throughout the facility, lead-lined walls in X-ray rooms, dedicated HVAC systems for clean rooms or surgical suites, and extensive millwork and cabinetry for operatories and laboratories.

As a result, medical and dental offices often achieve 25-35% reclassification rates, with equipment-heavy practices seeing even better results. Don't forget to consider Section 179 expensing for qualifying medical equipment purchased separately from the building.

Self-storage facilities have characteristics that make them particularly favorable for cost segregation. These properties typically feature a high percentage of site improvements including driveways, parking, and outdoor lighting. Security systems, fencing, and gates represent significant short-life property investments. The buildings themselves often have minimal interior finishes, meaning a higher percentage of the cost relates to reclassifiable components.

Climate control systems, where present, add to the reclassification potential. It's common for self-storage facilities to achieve 30-40% reclassification rates, making them excellent candidates for cost segregation. When planning expansions, consider the timing of cost segregation studies to maximize benefits across different phases of development.

Section 179 and cost segregation serve different purposes and can actually be used together strategically. Section 179 allows immediate expensing up to $1,220,000 (for 2024) of qualifying property, including certain qualified real property improvements like HVAC systems, roofs, fire protection systems, and security systems placed in service after the building was first placed in service. However, Section 179 has income limitations requiring sufficient business income to use the deduction.

Cost segregation, on the other hand, identifies and reclassifies components throughout the entire property without dollar limits. The two strategies complement each other - you might use Section 179 for specific qualifying improvements while using cost segregation for the overall property analysis. Note that if you take Section 179 on certain components, those must be excluded from the cost segregation study to avoid double-dipping.

Since land itself cannot be depreciated, the allocation between land and building directly impacts the results of a cost segregation study. It’s important to note that we do not determine or participate in setting the land allocation — our analysis is based on the land value provided by the county/tax records or provided by the client.

If you believe the land and building allocation on your records is inaccurate, you can engage a qualified third party, such as a certified appraiser, to provide an independent valuation before the study is completed.

While our studies are based on engineering analysis and IRS guidelines, we understand you may have questions about specific classifications. If you disagree with certain component classifications, we can review the engineering rationale and supporting documentation. Minor adjustments might be possible if you provide additional information about specific assets or their use. However, significant departures from engineering standards could compromise the study's defensibility.

You can choose to be more conservative than the study recommends by treating some personal property as structural components, though this reduces your tax benefits. We provide detailed documentation explaining each classification decision, which your CPA can review. Remember that our studies include audit defense, so we stand behind our engineering conclusions. If you have specific concerns, it's best to address them before finalizing the study.

The classification depends on how the property is used rather than its physical characteristics. Residential rental property depreciates over 27.5 years and includes any building or structure where 80% or more of the gross rental income comes from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations, but specifically excludes units in hotels, motels, or other establishments where more than half the units are used on a transient basis.

If your property operates like a hotel with average stays under 7 days and provides substantial services similar to hotels, it's classified as nonresidential property depreciating over 39 years. This distinction is crucial for short-term rental operators who might assume their single-family home would automatically qualify for 27.5-year depreciation when it may actually be classified as commercial property due to its transient use pattern.

Placed in service is a critical concept that determines when depreciation begins. Property is placed in service when it's ready and available for its specific use, whether or not you actually begin using it immediately. For newly constructed buildings, this typically coincides with receiving a certificate of occupancy, though the property might be placed in service earlier if it's ready for its intended use.

For rental properties, the placed-in-service date is when the property is ready and available for rent, evidenced by activities like advertising for tenants, not necessarily when the first tenant moves in. Construction projects can have multiple placed-in-service dates if portions are completed and available for use at different times, with each portion depreciated from its respective date.

For renovations and improvements, each project has its own placed-in-service date when that specific improvement is complete and ready for use. Documentation such as certificates of occupancy, notices of substantial completion, final inspection reports, or evidence of advertising for tenants helps establish the placed-in-service date.

If your property has already been depreciated in prior tax years, it’s important that the placed-in-service date used in a cost segregation study matches the date established in your existing depreciation schedule to ensure consistency

The One Big Beautiful Bill Act, signed into law on January 19, 2025, has reinstated permanent 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, fundamentally changing the landscape for real estate investors. For properties placed in service before January 19, 2025, unfortunately, the prior phase-down schedule remains in effect, meaning these properties receive 60% bonus depreciation if placed in service in 2024, or 40% if placed in service between January 1 and January 19, 2025.

The new 100% rate cannot be applied retroactively to these properties due to the specific effective date provisions in the legislation. However, for properties placed in service after January 19, 2025, the reinstated permanent 100% bonus depreciation applies to all qualified property identified in your cost segregation study, including 5-, 7-, and 15-year property classifications. This permanence eliminates concerns about future phase-downs and makes long-term tax planning more predictable.

R.E. Cost Seg is committed to ensuring all our clients receive maximum value from this law change. All new studies for properties placed in service after January 19, 2025, automatically apply the 100% rate. For studies we completed earlier in 2025 before the law was signed, we provide complimentary updates to the depreciation schedules if your property qualifies for the higher rate. Simply contact our team to request your free updated schedules.

This permanent reinstatement makes cost segregation studies even more valuable, as you can now accelerate the full cost of short-life property into the year placed in service without worrying about diminishing benefits in future years.