You Don’t Need a 1031 to Win on Taxes
Cost segregation accelerates deductions on property you already own: no exchange and no exchange clocks.
Fresh Basis, Full Power
On any taxable purchase, your full purchase price less the land is fresh depreciable basis (land is never depreciated), so the whole building is on the table for a cost segregation study. A 1031 buyer’s carryover basis generally keeps depreciating on the OLD property’s schedule; only the excess basis, the new money above the relinquished property’s basis, starts a new depreciation life, unless the CPA makes the election to treat the whole replacement property as newly placed in service (Treas. Reg. §1.168(i)-6). Buy taxably and there is no old schedule dragging along behind you.
Catch Up Without Amending
Already owned the property for years? You can generally catch up the accelerated depreciation you missed in ONE tax return, through an automatic Form 3115 accounting-method change (DCN 7), with no amended returns once two or more returns have been filed and no sale required. How much of that deduction you can use in the year depends on your tax situation. Your CPA confirms the route, files the form with your next return, and our study gives them the numbers.
Estimate Your Catch Up
Tell the engine when you bought, what you paid and what kind of property it is. It models the study, replays the years already filed and returns the §481(a) adjustment your CPA would claim.
Choose the year and the month the property was placed in service to see the catch up.
Planning figures from our estimate engine, never a guarantee. Prior returns are assumed to have depreciated the whole building straight line from the month you choose. The bonus rate follows the acquisition date, which the calculator assumes is the first of that same month. Under a written binding contract the acquisition date can differ from the closing date, and property acquired on or before January 19, 2025, or in 2017 before September 28, takes a different rate. The calculator treats the property as a purchased existing building, so a purchase on or before September 27, 2017 takes no bonus depreciation, because bonus then reached only property whose original use began with you; new construction is different. If your filed schedule or your facts differ, the catch up changes. We do not prepare tax returns or provide legal advice; your CPA decides how the catch up reaches the return. Questions about your own numbers? Contact us.
No Clocks
A 1031 exchange runs on unforgiving deadlines: 45 days to identify replacement property, 180 days to close, and a qualified intermediary holding your money, for a fee, the whole time. Cost segregation has none of that. No identification windows, no closing countdowns, no intermediary fees. You order a study when it makes sense for your tax year, and that’s it.
When They Pair
This isn’t 1031-versus-cost-seg: the two can work together. After an exchange, a cost segregation study can accelerate depreciation on the replacement property’s excess basis (the new money above your carryover). And if an exchange fails, the gain becomes taxable; depreciation from a study on property you do buy can lower that year’s tax, and your CPA weighs how the two interact, including when the gain is reported.
Already DID a 1031? Our dedicated 1031 Exchange Cost Seg service handles the carryover and excess basis split.
Honest Fine Print
- Depreciation recapture on sale. Accelerated deductions can come back when you sell: §1245 personal-property depreciation is recaptured as ordinary income, and unrecaptured §1250 gain on the building is taxed at up to 25%.
- Passive-activity limits. Rental losses generally offset other income only if you qualify as a real estate professional, materially participate in a short-term rental, or qualify for the special allowance of up to $25,000 for owners who actively participate and whose modified adjusted gross income is under $100,000 (phasing out by $150,000). Your CPA confirms which applies. Otherwise the losses aren’t lost: they carry forward to future passive income or the eventual sale.
- State differences. Some states add back bonus depreciation, so the savings shown throughout this site are federal.
- Always confirm with your CPA. Your specific tax situation controls what these deductions are actually worth to you.