A taxpayer may prepare cost segregation look-back studies on existing assets and re-calculate the depreciation for prior tax years based on the reclassified asset costs.
The IRS-Approved process for a taxpayer to change accounting method is the timely filing of Form 3115 (Request for Change in Accounting Method). Per Rev. Proc. 2002-9, 2002-3 IRB 327, a taxpayer may request “automatic consent” for the change. Rev. Proc. 2004-11 modifies Rev. Proc. 2002-9 and other IRS procedures to conform with § 1.446-1T(e)(2)(ii)(d) of the temporary Income Tax Regulations.
When cost segregation is the basis for reclassifying or “reallocating” assets from 39-year depreciation to 5-, 7- or 15-year depreciation, it is important to file Form 3115 as soon as possible following completion of the cost segregation study.
As long as the commercial property was purchased, built or improved since January 1, 1987, cost segregation can accelerate the depreciation into the current tax-year via a Sec. 481(a) adjustment.
Thus, cost segregation can deliver substantial tax savings to the owner of commercial real estate when properly applied. As always, an engineer-conducted cost segregation study is the most prudent method to use as it is the most thorough and complete.
Cost segregation delivers results every time it’s applied!
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