What Your CPA Needs to Know
About Cost Segregation
Forward this to your CPA — everything they need to file your accelerated depreciation.
Based on IRS Audit Techniques Guide (2022) and U.S. Tax Court precedent.
Overview
What is cost segregation?
A cost segregation study reclassifies building components from 27.5-year (residential) or 39-year (commercial) straight-line depreciation into shorter MACRS recovery periods: 5-year, 7-year, and 15-year property. This is not an aggressive strategy — it follows IRS guidelines established in the Audit Techniques Guide.
With 100% bonus depreciation restored under OBBBA (2025+), reclassified components can be fully deducted in Year 1. Most residential properties see 25%–35% of depreciable basis reclassified to shorter lives.
$500K Property · Year 1 Tax Savings
$37,000 – $52,000
At 37% rate · 100% bonus (2025+)
Scales ~linearly: $1M property → $60K–$100K
Scales ~linearly: $1M property → $60K–$100K
Filing
How to claim accelerated depreciation
| Scenario | Form | Notes |
|---|---|---|
| Current-year property | Form 4562 | File with the tax return for the placed-in-service year |
| Prior-year property (first time filing cost seg) |
Form 3115 (automatic consent) | Change in accounting method — no IRS approval needed (Rev. Proc. 2024-23) |
| Lookback / catch-up (switching from straight-line) |
Form 3115, Section 481(a) | Same mechanism — 481(a) adjustment captures all missed accelerated depreciation in one year |
Form 3115 filed under automatic consent procedures of Rev. Proc. 2024-23. No amended returns required for prior-year properties.
Bonus Depreciation
100% restored for 2025+
The One Big Beautiful Bill Act (signed July 2025) permanently restored 100% first-year bonus depreciation for qualified property. For lookback studies, the bonus rate is based on the placed-in-service year:
| Year | 2023 | 2024 | 2025+ |
|---|---|---|---|
| Bonus Rate | 80% | 60% | 100% |
Lookback studies use the bonus rate from the year the property was placed in service.
Report Includes
What you receive
- Component-level depreciation schedules with MACRS class
- Land allocation with methodology documentation
- 5-year, 7-year, and 15-year asset breakdown
- Executive summary with total reclassified basis
- Engineering methodology & data sources section
- Section 1250 recapture analysis
- Ready for Form 4562 or Form 3115 filing
Verify Before Filing
CPA review checklist
- Section 1250 recapture implications reviewed
- Land allocation reasonable for market area
- Component classifications match property type
- Total accelerated % consistent with property class
- Bonus depreciation eligibility confirmed for PIS year