The Best Time for a Cost Segregation Study? The Answer Might Surprise You
·2 min 12 sec
When is the best time to do a cost segregation study?
Ideally immediately after acquiring or improving a property, because every month the property is depreciated conventionally is a month of assets not reclassified into the faster 5-year and 15-year categories. Timing also depends on investor profile. Active investors can typically use the resulting losses right away to offset other income, so urgency is high. Passive investors face limits on deducting passive losses, and spreading studies across tax years or using the short-term rental rules may be more advantageous.
When should I do a cost segregation study? It’s one of the most common questions we hear. In this video, Carlos Gonzalez from US Tax Advisors Group cuts through the complexity with a straightforward rule of thumb and the critical exceptions every investor must know.
The Golden Rule: Act Fast.
Ideally, you should conduct a cost segregation study immediately after acquiring or improving a property. Why? Every month you depreciate the property conventionally, you’re missing the opportunity to reclassify assets into faster 5-year and 15-year categories. Doing it right from the start is the cleanest, most efficient path to maximizing your accelerated depreciation.
“Ideally, you want to do it as soon as possible. That way, you're depreciating the property in the correct way from the get-go.”
But Your Strategy Dictates the Timing.
While “as soon as possible” is the ideal, smart planning is key. The right timing for you also depends on other details, like for example your investor profile:
Active Investors: Can typically use the generated losses immediately to offset other income. For you, the urgency is high.
Passive Investors: Face limitations on deducting passive losses. Spreading studies across years or exploring strategies like the short-term rental loophole might be more advantageous. “I’ve seen people strategically do one property this year and others next,” Carlos notes.
There is no one-size-fits-all answer, but the timing should be a strategic decision, not an afterthought. Let our experts analyze your portfolio and income strategy to build a personalized plan that captures maximum savings at the right time for you.
Full transcript
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0:02Hey, what's going on everyone? I am Carlos Gonzalez with US Tax Advisors Group and today I want to talk to you about when to do a cost segregation study. I get this question asked all the time When should I do a cost segregation study? typically You want to do it as soon as possible because otherwise The more you straight line depreciate that investment property the more you're chipping away from that five and 15 year property so ideally and And then, you know, when you do it as they look back, there's also more steps that have to be taken into account.
0:35You have to fill out a Form 3115. There's a lot of more steps, like I said. So ideally you want to do it right away, but it really, really depends on your strategy. It really, really depends on your CPA's advice. So it really depends on those elements because ideally you want to do it right away. And this is almost a rule of thumb if you're an active real estate investor, but if you're a passive real estate investor, or if you don't have that many losses that you can tackle, that you really didn't have any income for any passive income for that property, or your gains were very minimal.
1:14I've seen it where some people say, hey, you know what, I have three properties and let's just do one this year and let's see if we do the other two next year because they are passive real estate investors. Therefore, they're not being able to take full advantage of the losses since there's a cap on how much they can take. And then once you're in that passive investor lane, you might wanna consider the short-term rental loophole, see if it's something that works for you, talk to your CPA.
1:42But under nutshell, just to summarize, ideally you wanna do a cost aggregation study as soon as possible. That way you're reclassifying the property, You're depreciating the property and the correct way from the get go. But if this is not a strategy that makes sense for you because of different factors, then, you know, talk to your CPA and see what works best. But ideally you want to do it as soon as possible. See you guys next time.
