05/19/2026
When Is the Best Time to Perform a Cost Segregation Study?
The IRS rules are very favorable and do not require taxpayers to segregated building components in the 1st year of ownership for any purchased or constructed building (or for leasehold improvements).
Ideally, it’s best to perform a cost segregation study immediately after a property is placed-in-service. This way, the engineer performing the site tour can get the most accurate picture of the items included within the property and can determine exactly which assets are present at the date placed-in-service. In addition, doing the cost segregation study at the time the assets are placed in service allows the taxpayer to maximize tax savings from day one.
How Far Back Can we Perform a Cost Segregation Study if a study wasn't conducted yet?
The IRS does, however, allow the benefits from previous years to be claimed using a “look-back” cost segregation study by automatic consent WITHOUT AMENDING tax returns. By reclassifying assets to their correct lives, taxpayers can “catch-up” on all the depreciation they would have received had the engineering study been performed in the first tax year. Look-back studies do not require an amended tax return; instead, the catch-up depreciation is claimed by use of Form 3115 "Application for a Change in Accounting Method".
