🇺🇸 Made in America·100% U.S.-Based Team · 24+ Years in Cost Segregation
If you own several properties, you do not have to run every cost segregation study in the same year, and you generally should not. Because a change in accounting method lets you claim previously unclaimed acceleration on a property you have owned for years, with the catch-up adjustment landing in the year of change, you can choose which year receives the deduction. That turns cost segregation from a one-time event into a timing lever you control, letting you match large deductions to the years you have income to absorb them.
An investor in Muncie, Indiana bought four small commercial properties over about six years. In the year he acquired the fourth, his CPA suggested running cost segregation studies on all four at once, capturing everything that had been missed.
It sounded efficient. It was not optimal.
That year, his income was modest. A tenant had vacated, one property was mid-renovation, and his other business had a soft year. The combined deductions swamped his income. A large portion could not be used, became a carryforward, and sat there.
Two years later his income roughly tripled. That was the year the deductions would have been worth the most, and they were already spent.
Nothing improper happened. The deductions were real and they were not permanently lost. But a substantial amount of value evaporated purely on timing, in a situation where the timing was actually controllable. This article is about that control.
The reason you have a choice comes down to one mechanism, and it is the same mechanism behind lookback studies.
For a property placed in service in a prior year where you did not claim the acceleration you were entitled to, you can generally change your method of accounting for depreciation. The change produces a catch-up adjustment reflecting the difference between what you claimed and what you could have claimed. Critically, that adjustment is generally taken into account in the year of change, not spread back across the prior years and not requiring amended returns.
Read that again, because it is the whole point. The deduction for years of missed acceleration lands in the year you make the change. Which means you choose the year, within the ordinary rules and procedures, by choosing when to make the change.
That is unusual. Most tax deductions land when the underlying event occurs, and you have no say. Here you have a genuine, legitimate choice about which tax year receives a potentially large deduction.
Once you see the lever, the question changes shape. It stops being "should I do cost segregation" and becomes "which property, in which year, against what income."
Consider what an investor with several properties actually has. Some properties recently acquired, where a study applies to the current year. Some held for years, where a lookback is available whenever they choose to run it. Income that varies year to year, sometimes considerably. Passive income in some years and not others. Possibly a sale coming, which brings gain into a specific year. Possibly a large income event from outside the real estate entirely.
Against that, they hold a set of available deductions that can, to a meaningful extent, be assigned to years. That is a planning problem with a real answer, and most investors never treat it as one. They either do nothing, or they do everything at once the way the Muncie investor did.
A few principles make the sequencing tractable. All of them run through your CPA, because the answers depend on your full tax picture.
Match deductions to income you actually have. The governing constraint is usually usable income. A deduction landing in a year where it is fully usable is worth its face value times your bracket. A deduction landing in a year where it is stranded is worth a carryforward, which is worth less because of timing and because release may depend on events you do not fully control. Before running a study, ask what income it will land against.
Watch the bracket, not just the dollars. A deduction is worth your marginal rate. If you expect a materially higher-income year ahead, a deduction taken then is worth more than the same deduction taken now. That has to be weighed against the time value of taking it now, which cuts the other way. There is no universal answer, only your numbers.
Do not strand deductions in low-income years. The single most common error, and exactly the Muncie mistake. Running everything in a soft year converts usable deductions into carryforwards.
Coordinate with dispositions. A property sale brings gain into a specific year, and gain is income. That can make the sale year a strong candidate for deductions from other properties. It also interacts with suspended losses being released on the disposition itself, which is its own analysis.
Remember the current-year properties are different. A newly acquired property has a study that applies to the current year in the ordinary course. The flexibility described here is primarily about properties you already hold and have not yet studied.
Do not over-optimize into inaction. The most expensive plan is the one where you keep waiting for the perfect year. Deductions deferred indefinitely are deductions not taken. If a property qualifies and you have income, running the study is usually better than waiting for a hypothetically better year that may not arrive.
Keith Cunningham's discipline is the right one. The Muncie investor did not lose money on a bad property or a bad study. He lost it on sequencing, which is invisible on every financial statement he will ever look at. The most expensive decisions are usually the ones that never appear as a line item.
Two developments make portfolio timing more consequential than it was a few years ago.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100 percent bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. During the phase-down years, the bonus rate was declining annually, which created pressure to act quickly before the rate dropped further. That pressure is gone for property that qualifies. Permanence means you can plan across years rather than racing a schedule.
At the same time, the placed-in-service date still determines which bonus regime a property falls under. Properties placed in service before the cutoff are governed by the older phase-down rates. So a portfolio may contain properties on both sides of that line, with different acceleration profiles. Knowing which properties are which is part of sequencing them intelligently.
An honest version of this includes what you cannot do.
You cannot choose retroactively after seeing how a year turned out. The change in accounting method has its own procedural requirements and timing, and the filing has to be made properly for the year in question. This is planning done in advance, not a lever you pull in hindsight.
You cannot manufacture usable income. If the deduction exceeds income, or the passive activity rules keep it from your other income, the timing choice only goes so far. For many investors, the binding constraint is not which year they choose but whether they have passive income at all, which is a different problem with different solutions.
You also cannot ignore the cost of the studies themselves. Running four studies costs more than running one, and the fee is real whether or not the deduction lands well. Sequencing should account for the fees, not just the deductions.
And the procedural work is real. Each change in accounting method involves a Form 3115 and the associated computations. That is ordinary CPA work, and on a lookback the referring CPA typically handles the filing, but it is not free of effort.
Running every study in the same year by default. Efficient to administer, frequently poor tax planning, and the single most common portfolio-level error.
Ignoring what income the deduction will land against. The deduction's value depends entirely on usable income in the receiving year.
Assuming a carryforward is as good as a current deduction. It is not, because of timing and because release can depend on future events.
Forgetting the fees. Multiple studies carry multiple fees, and that belongs in the sequencing math.
Waiting indefinitely for the ideal year. Deferral has a cost too. Perfect timing is not worth years of unclaimed deductions.
Treating it as a tax-return task rather than a planning task. By the time you are preparing the return, most of the choice is already made.
If you own more than one property and have not studied all of them, treat this as an actual planning conversation with your CPA rather than a filing decision. The questions are concrete. Which properties have unclaimed acceleration available? What is my expected income over the next several years, and in which of those years would a large deduction be fully usable? Do I have a disposition coming that will generate gain? Which properties fall on which side of the January 19, 2025 placed-in-service line?
From those answers, a sequence falls out. Not a perfect one, since forecasts are forecasts, but a considered one, which is a substantial improvement over doing everything at once in whatever year the subject happened to come up.
On the study side, the Cost Seg America team performs engineered analyses using IRS Approaches 1 and 2 on properties across a portfolio, and provides the documentation supporting a change in accounting method where a lookback is used. More than 16,000 studies completed. More than 125 IRS audits defended with zero losses and zero dollars ever returned to the IRS. The average first-year savings across those studies is $438,511. Engineered, not estimated.
Request a free proposal on one property or several, or reach out to the Cost Seg America team directly:
1-888-365-5023
info@costsegamerica.com
Do I have to do cost segregation studies on all my properties at once?
No, and usually you should not. Because a change in accounting method lets you claim previously unclaimed acceleration on properties you already own, with the catch-up landing in the year of change, you can sequence studies across years to match income.
How does the timing choice actually work?
For a property placed in service in a prior year, a change in accounting method produces a catch-up adjustment that is generally taken into account in the year of change, without amending prior returns. Choosing when to make the change effectively chooses the year the deduction lands.
What determines the best year for a deduction?
Primarily whether you have income the deduction can actually offset in that year, and your marginal rate. A deduction that gets stranded as a carryforward is worth less than one used currently.
Should I wait for a higher-income year?
Sometimes, but not indefinitely. A higher bracket increases the deduction's value, while deferral costs you time value and risks the year never arriving. Weigh both rather than defaulting to waiting.
Does a property sale affect the sequencing?
It can. A sale brings gain into a specific year, which is income deductions can offset. It also interacts with suspended passive losses that may be released on the disposition, which is a separate analysis.
Can I decide after the year ends?
Not freely. The change in accounting method has procedural requirements and timing rules, so this is advance planning rather than a hindsight adjustment.
Does it cost more to run studies separately?
Each study carries its own fee, so multiple studies mean multiple fees. That cost belongs in the sequencing analysis alongside the deduction timing.
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