1. What is a cost segregation study, and how does it work?

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A cost segregation study breaks down the cost of a residential rental property into shorter-lived asset classes (like flooring, appliances, and landscaping) so you can accelerate depreciation and reduce your taxes in the early years of ownership. Instead of depreciating the entire building over 27.5 years, you can depreciate certain components over 5, 7, or 15 years—resulting in large, front-loaded tax deductions.

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At 24 Hour Cost Seg, we use property records and your documentation to deliver a fully IRS-compliant study within 24 hours—no site visits needed.

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2. Who qualifies for a cost segregation study?

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Anyone who owns an income-producing residential property (short-term rental, long-term rental, or multifamily) may qualify. Cost segregation is especially beneficial for high-income earners, real estate professionals, and those actively building a rental portfolio.

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You do not qualify if the property is your personal residence.

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3. How do I determine the land vs. building value for depreciation?

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The IRS doesn’t allow you to depreciate land, only the building. To determine the correct allocation:

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• First look to your appraisal report, which may list separate values for land and building.

• If no appraisal is available, the IRS will defer to your county tax assessor’s allocation (commonly found on your property tax bill).

 

You subtract the land value from your total purchase price to determine the depreciable basis for the study.

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4. How much can I expect to save with a study?

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Savings vary based on purchase price, property type, and use—but it’s common to accelerate 20–35% of the purchase price into 5, 7, or 15-year depreciation. This can result in tens of thousands of dollars in first-year deductions, significantly reducing your tax liability.

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5. What documents do I need to provide?

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Our intake process is simple and fully online. We’ll ask for:

• Property address and type

• Purchase price and closing date

• Closing disclosure (or HUD-1) (if available)

• Square footage

• Various details of the home including number of rooms, appliances, type of flooring, condition of property,  etc.

 

6. How quickly will I receive my cost segregation report?

 

Your report will be delivered within 24 hours after we receive your complete intake form and documents. It will include the full asset breakdown, depreciation schedule, and all support for your CPA to apply it to your tax return.

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7. What is Form 3115, and do I need it?

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Form 3115 is an IRS form used to change your accounting method and "catch up" on missed depreciation from prior years. If you've owned the property for more than one tax year and didn’t do a cost seg initially, you’ll likely need Form 3115 to claim the full benefit. 

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8. How far back can I go to catch up on depreciation?

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There is no time limit, but we generally recommend using cost segregation for properties acquired within the last 10–15 years. The older the property, the less value remains to depreciate. If applicable, all missed depreciation can be taken in the current year via Form 3115.

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9. Can I amend a prior year’s return to claim cost seg benefits?

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Yes—but only if the property was acquired in the prior year and you haven’t filed two consecutive tax returns for that property. After two years, you must file Form 3115 instead of amending.

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10. Can I do a cost seg study in the same year I sell a property?

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Technically yes, but it’s usually not advisable. Since depreciation is recaptured at sale, accelerating it in the year of sale often results in a net tax increase, not a benefit. Talk to your CPA before considering this.

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11. Will I have to repay the tax benefit when I sell the property?

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When you sell, you may be subject to depreciation recapture, which taxes the accelerated depreciation at a higher rate than standard capital gains. Even with recapture, most investors still come out ahead due to the time value of money and increased cash flow over the years.

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12. Can cost segregation deductions offset other types of income?

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That depends on whether your rental activity is considered passive or active:

• If you're a passive investor, deductions generally can only offset other passive income.

• If you qualify as a real estate professional or materially participate in a short-term rental, your losses may be able to offset W-2 or business income.

 

13. Can cost seg losses from one property offset income from another?

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Yes. Passive losses from one rental property can be used to offset passive income from another. This is especially helpful for investors with multiple properties in service.

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14. Will this impact my local property tax return or personal property filings?

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It might. Some states define "personal property" differently. While our reports are for federal tax purposes, we recommend speaking with a local property tax expert to see if there’s an impact in your state.

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15. Can I use cost segregation on property outside the U.S.?

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No. 24 Hour Cost Seg only provides studies for properties located within the United States. Properties in Mexico, Canada, or other countries follow different depreciation rules not supported by our service.