It's Not Too Late For Properties Owned For Years
·3 min 51 sec
Can you still do a cost segregation study on a property you have owned for years?
Yes. A property placed in service in a prior tax year can still be studied through a lookback study. IRS Form 3115, the Application for Change in Accounting Method, lets you correct the depreciation method and claim every previously missed deduction as a single 481(a) adjustment in the current tax year, with no amended returns. The existing depreciation schedule is what makes this possible: it supplies the date placed in service, the original building cost basis with land already separated, and the accumulated depreciation taken to date.
Did you acquire a commercial or rental property years ago and think the window for cost segregation had closed? Many investors, and even their CPAs, believe amending past returns is the only option. They are mistaken. Carlos from US Tax Advisors Group clarifies a powerful strategic tool: the Cost Segregation Lookback Study.
If you placed a property in service in a prior tax year (e.g., 2020, 2018, or even earlier), you can still perform a study and claim the "catch-up" depreciation all in one year, without the hassle of amending returns.
The process uses IRS Form 3115 (Application for Change in Accounting Method). This form allows you to correct your depreciation method and claim all previously missed deductions as a single, often substantial, "481(a) Adjustment" in the current tax year.
"You can do lookback studies all day long, without having to amend... it allows you to tackle catch-up depreciation. This is how much you owe me, Uncle Sam."
Your Depreciation Schedule is the Key.
For a lookback study, your existing depreciation schedule is our essential roadmap. It provides the critical data we need:
Date Placed in Service
Original Building Cost Basis (land is already separated)
Accumulated Depreciation Taken to Date
A responsible lookback analysis starts with a frank assessment. We review your schedule to determine if a significant benefit still exists. For properties held and depreciated for a very long time on a low original basis, the benefit may be minimal. We will tell you upfront if it’s worth proceeding.
Serious real estate investors need serious tax guidance. Online tax platforms often lack the sophistication for strategies like this. A knowledgeable CPA or Enrolled Agent is crucial to successfully filing Form 3115 and maximizing this opportunity. Send us your depreciation schedule for a complimentary benefit analysis. We’ll quantify your potential catch-up depreciation and provide a clear path forward.
Find Out What You've Been Missing.
Full transcript
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0:02Hey, what's going on everyone? I'm Carlos with US Tax Advisors Group and today I want to talk to you about look back study. So let's say that you have a property that you place in service back in 2020 and it's 2025 and you want to do a cost segregation study on it. And I just had that exact example where the client CPA told the client, hey, you can't do it because you would have to amend and you don't really, you know, you want to stay away from amending.
0:28The reality is that if you're trying to do a call six study on a property that you place in service in a prior tax year, it's what's known as a look back study where you don't necessarily have to amend because your CPA will assist you with filling out the Form 3115. However, your CPA has to have the knowledge to make sure that they assist you with this process because there's additional steps that have to take place, which include like I said filling out the 3115.
0:57On our end, what we do is, first of all, we have to get a hold of your depreciation schedule. I've seen some people that they do their taxes via TurboTax and those online platforms. Some of those will not generate you a depreciation schedule. If you're trying to get a little bit more, you know, if you're trying to do more strategizing and taking your real estate strategy, you know, up to the next level, you also have to take it up to the next level in your finances and make sure that you are hiring a CPA or enrolled agent, someone to assist you with filing your returns. Nothing against TurboTax, but TurboTax will really not get you there. We have to take a look at that depreciation schedule. The depreciation schedule includes the date and service. It includes the building basis. We no longer have to figure out what the land allocation is because it's already being carved out.
1:55And it includes the life that's been allocated to the asset. I've seen residential properties that are treated as 39 years. So I want to make sure that we, and that is the case on things like short-term rentals and stuff like that, on some short-term rental situations. So I want to make sure that everything follows accordingly. So on our end, we're going to dot our T's cross, dot our I's cross our T's, we're going to have your depreciation schedule be our reference our roadmap to complete the study and then also to tell you if there's still a benefit sometimes you know we have clients that hey you know I place this property in servers back in 2013 all right let me take a look at your depreciation schedule another element that's available in your depreciation schedule is your accumulated depreciation so once we take a look at that and say hey you know what you know the accumulated depreciation at this point is so high because you've been depreciating in the property for so long, and the original building basis was relatively low, let's say less than 200,000, that the benefit is not really there.
3:00So it allows us to also give you that answer right away, hey, is there a benefit or is there a benefit here just because you've been depreciating the property for such a long time? So your depreciation schedule is a key component on doing what's known as a look back study. You can do look-back studies all day long without having to amend because a look-back study, once you do it and we provide some guidance on how to fill out the 3115 form for your CPA.
3:29Primarily, we assist you with the 481A adjustment which is your catch-up depreciation. So that allows you to tackle depreciation as you know, catch-up depreciation. Hey, this is how much I've depreciated the property. So far, this is how much you owe me, Uncle Sam, as opposed to you having to amend your return. See you guys next time.
