​Precision Asset Solutions
Frequently Asked Questions
&
Additional Information
Cost Segregation Basics
What is cost segregation?
Cost segregation is a strategic tax-saving tool that allows real estate owners to accelerate depreciation deductions by identifying and reclassifying components of a building into shorter-life asset classes.
How does it work?
Instead of depreciating an entire building over 27.5 or 39.5 years, we identify the portions that the IRS treats as 5-, 7-, or 15-year property. Accelerating those deductions lowers taxable income in the early years of ownership.
Which properties benefit?
Most income-producing properties qualify: Multifamily, RV parks, Mobile Home parks, Rentals, Office, Industrial, Retail, Hospitality, Medical, Self‑Storage, and more. Primary residences don’t qualify.
Eligibility & Timing
I bought a property in a prior year. Can I still do a study?
Yes. You can apply cost segregation retroactively and 'catch up' missed depreciation using an accounting method change.
When is the best time to get a study?
Anytime during ownership, but ideally the year the property is placed in service or before filing that year's tax return.
Do new construction or renovations qualify?
Yes. New builds, acquisitions, and improvements/renovations can all be analyzed.
Tax Mechanics You Should Know
What depreciation lives are we talking about?
Typically, 5, 7, and 15 years for reclassified property. The balance remains 27.5 years (residential rental) or 39.5 years (Commercial).
How does bonus depreciation factor in right now?
100% Bonus Depreciation is restored with the OBBB!
For qualified property acquired and placed in service after Jan 20, 2025
(no phasedown like 2024: 60%, 2025: 40%, 2026: 20%.) If a property was put into service prior to January 20th, 2025, a taxpayer can still benefit by amending their previous tax returns by filing a Form 3115. The portion of accelerated depreciation not utilized for bonus depreciation is still accelerated and can be applied to like-kind income, such as passive income from rentals.
Can these deductions offset my W‑2 income?
Generally, rental losses are passive and cannot offset W‑2 wages unless you qualify under specific rules (like Real Estate Professional status). However, passive losses will offset passive income from rentals and will carry over from year to year until used up. This can help increase cash flow for other projects or distributed personal income.
Process & Deliverables
What does PAS actually do?
We perform an on-site inspection of every property, review provided documentation, and provide an accurate assessment of items that can be accelerated. We provide an IRS‑compliant report of real property that can be reclassified for acceleration and bonus depreciation.
What do I receive at the end?
A comprehensive report with asset classifications, methodology, calculations, and CPA‑ready schedules.
How long does it take?
Typical turnaround is a few weeks from receiving complete documents. However, depending on the scope of work and current workflow, additional time may be needed.
Cost, ROI & Minimums
What does a study cost?
Fees vary by property size, complexity, and timeline. In most cases, tax savings far outweigh the fee in year one.
Is there a property value where it does not make sense?
Smaller properties with very low basis might not justify a full study. We'll assess feasibility first at no cost to the client.
Audit Readiness & Risk
Is cost segregation IRS-compliant?
Yes—when done correctly with an engineering‑based study aligned with IRS guidance.
Will doing a study increase my audit risk?
A properly prepared report should not trigger an audit and is designed to be defensible.
Selling, Exchanges & Recapture
What happens when I sell the property?
Depreciation taken is subject to recapture rules, but cost segregation only affects timing.
Does cost segregation still make sense if I plan to sell soon?
Often, yes, because near‑term cash flow can outweigh later recapture. This depends on your tax strategy.
Special Situations
Short‑term rentals (STRs)
Accelerated depreciation may offset ordinary income if the rental is treated as non‑passive. This is fact‑specific.
Real Estate Professional Status (REPS)
If you or your spouse qualify, rental losses may be non‑passive. Documentation is key.
Partnerships & Syndications
Cost segregation can be applied at the entity level, with allocations shown on K‑1s.
Documents We’ll Request
Examples include:
Closing statement, construction budgets, appraisals, drawings, fixed asset ledgers, and parcel data.
How PAS Works With Your CPA
How do you coordinate?
We prepare CPA‑ready schedules and support accounting method changes if needed. Our goal is accuracy and efficiency.
Getting Started
What are the steps?
1. Feasibility snapshot → 2. Engagement & intake → 3. Study & review → 4. Delivery & CPA coordination.
Disclaimer: This FAQ provides general information only and does not constitute tax, legal, or accounting advice. Consult your professional advisors before making decisions.