If constructing new or remodeling, the best time to involve the cost segregation is at the start of the project so that we can work with the contractor(s) to set up the cost reporting in the most efficient manner.
When acquiring property, it is best to involve the group right before or during the acquisition since the cost segregation study should generally be respective of the acquisition date. Property information such as appraisals, plans, and surveys are readily available near the closing date, but become difficult to locate as time passes.
A cost segregation study can be done as part of a 1031 tax deferred exchange but there are numerous items to consider and the benefit may be reduced. It is imperative to review the specifics of the 1031 exchange to help determine if having a study done is beneficial.
A cost segregation study can even be done retroactively. If the property owner constructed or acquired property as far back as 10 years ago or more, it is often financially beneficial to have the study completed. All of the missed depreciation is caught up in the current tax year and the taxpayer will likely have a significant reduction in their tax liability in the year the retroactive study is done. Rarely is it too late to have a cost segregation study completed.
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