Cost segregation regulations reference.
Three statutory frameworks govern whether cost segregation losses are usable in the year of the study, deferred as passive losses, or filed retroactively via a § 481(a) adjustment: the passive activity loss rules under 26 U.S.C. § 469, the MACRS classification framework under 26 U.S.C. § 168 (and 100% bonus depreciation under § 168(k) post-OBBBA), and the change-in-accounting-method procedures under Rev. Proc. 2015-13. Each of the pages below is the canonical Cost Seg Smart reference for one of those frameworks.
Which regulation applies to your situation
| Your situation | Primary regulation | What it unlocks |
|---|---|---|
| Airbnb/VRBO or vacation rental, W-2 day job | 75/55 rule (STR loophole) | W-2 income offset without REPS |
| Full-time real-estate operator, multiple LTRs | REPS | W-2 / active business income offset |
| Joint return, spouse in real estate full-time | REPS (spousal) | Combined household ordinary income offset |
| Property placed in service 2+ years ago | Form 3115 + § 481(a) | Catch-up depreciation in year of change |
| CPA looking up the actual regulation text | Treas. Reg. § 1.469-1T | Full reg + all six (A)–(F) exceptions |
Real Estate Professional Status (REPS) →
The 750-hour test, the 51% test, and the seven material participation tests. How REPS unlocks cost segregation losses against W-2 income — and when the spousal workaround or the STR loophole is a better path.
Who needs this: Long-term landlords, full-time real estate operators, and joint-filing couples where one spouse is in real estate.
The 75/55 Rule (STR Loophole) →
The 7-day average customer-use test and the 30-day-with-substantial-services variant. Reclassifies short-term rentals from rental activity to non-rental trade or business — exempting cost segregation losses from the § 469 passive activity loss limit without REPS.
Who needs this: Airbnb, VRBO, and vacation-rental owners with W-2 day jobs who want to offset ordinary income.
Treasury Reg. § 1.469-1T — full reference →
The full temporary regulation under § 469 — all six (A)–(F) exceptions that classify rentals as non-rental for passive activity loss purposes. The 7-day rule, the 30-day variant, extraordinary services, incidental rental, hourly access (gyms/golf), and partnership use.
Who needs this: CPAs and tax attorneys looking up the actual regulation text and its six exceptions.
Form 3115 (Catch-Up Depreciation) →
How cost segregation is applied to a prior-year property via automatic change-number 7. Full procedural walkthrough: change-number, § 481(a) catch-up adjustment math, the IRS Ogden duplicate-copy filing, and the multi-year computation table.
Who needs this: Property owners with rentals placed in service in any prior year — even properties owned for 10+ years can claim a full catch-up via § 481(a).
How these regulations interact
A cost segregation study runs on the same engineering methodology regardless of which regulation governs how its losses flow — components are reclassified per Rev. Proc. 87-56 into 5-, 7-, and 15-year MACRS classes (see our methodology page). What the regulations above determine is when and against what the accelerated deductions can be used.
- STR loophole + material participation → losses offset W-2 / ordinary income in Year 1, no REPS needed.
- REPS + material participation → losses offset W-2 / ordinary income in Year 1 across LTRs.
- Neither (passive activity) → losses suspended until passive income or property disposition.
- Property placed in service before this year → catch-up via Form 3115 + § 481(a) regardless of which loss-utilization path applies above.
Other tax frameworks (cross-references)
- Bonus depreciation hub — 100% bonus permanently restored under OBBBA (signed July 2025) for property placed in service 2025+.
- State conformity to federal bonus depreciation — CA, NY, NJ, and other non-conforming state breakdowns.
- Cost segregation methodology — RSMeans 2024, MACRS classification, IRS Pub 5653 (Cost Segregation ATG) compliance.
- Audit defense framework — 36-month audit-support scope and IRS examination defense.
- Depreciation recapture — § 1245 ordinary income recapture on 5/7/15-year buckets; unrecaptured § 1250 capped 25% on 27.5/39-year.
Companion IRS-rule reference: irsdepreciationrules.com
irsdepreciationrules.com is the Cost Seg Smart canonical IRS-rule reference layer — same publisher, dedicated to plain-language explanation of the underlying statutes and regulations. Each topic-hub page is the authoritative companion to the application-layer regulations pages on costsegsmart.com.
Regulations decided. Run the numbers.
Once you know which path applies, see what a study would produce on your property. From $495.
Estimate Year-1 benefit → Order a study