Cost segregation the year after property is in service?

Question

I plan to get Real Estate Professional status in 2026.  It's too late in 2025 to get the 750 hours needed.  I found a property I like but both sides of a multifamily are already rented.  Therefore the property would be 'in service' in 2025.  Can I do the cost segregation in 2026 when I get REP status or does it have to be 2025 when it goes in service?

G. Brian Davis · Answer

Hi @Anthony Bailey nice to meet you here on BP! it is based on the year the property is placed in service. However, Even though the property is in service in 2025, you could still do a cost segregation study in 2026 and make a Section 481(a) adjustment to catch up missed depreciation......

Fulton Abraham Sanchez · Answer

Hi @Anthony Bailey

Good thinking ahead on REP, most people try to “retrofit” it at tax time and it’s too late.

A couple key points:

Placed-in-service year vs. cost seg year
The property being placed in service in 2025 doesn’t lock you into doing the cost segregation in 2025. You can do a cost seg in a later year and “catch up” depreciation using Form 3115 (change in accounting method). That’s a normal path when people don’t do the study in year 1.

Why that matters for you
Since you’re planning to qualify as a Real Estate Professional in 2026 (and presumably materially participate in that rental activity in 2026), doing the cost seg in 2026 lines up better — that’s the year you can actually use the big deduction against other income. If you did it in 2025 but didn’t meet REP/material participation, a lot of that loss could get trapped as passive.

Caveat: bonus depreciation phase-down
One thing to keep in mind is that bonus depreciation is phasing down. So the year you actually take the catch-up can affect the size of the benefit. That’s why people model it out instead of guessing.

Do it clean
If you take the “later-year” route, it’s usually done with a proper cost seg study + Form 3115 + Sec. 481(a) adjustment, nothing exotic, just needs to be done right.

So short answer: yes, you can buy in 2025 and do the cost seg in 2026 when you actually qualify, that often makes more sense for REP timing than forcing it in 2025. Just make sure 2026 is a year you truly hit the 750 hours and material participation on that activity, or the loss still won’t flow through.

Good luck!

Aaron Zimmerman · Answer

You'll want to do the cost segregation study in 2026 as opposed to 2025 if you're planning on being a real estate professional. you'd just have to do a 3115 with the 481(a) adjustment.

That said, I'd recommend working with your cpa to ensure you do qualify for real estate professional status in 2026 prior to doing the cost segregation study.

Ashish Acharya · Answer

Good question and great answers so far. You can technically do the cost segregation study in 2026, but the key factor is when you claim the bonus depreciation. The IRS only allows bonus depreciation in the year the property is placed in service, which would be 2025 in your case.

So if you want to take advantage of bonus depreciation, it would have to be claimed on your 2025 return. However, if you qualify as a Real Estate Professional in 2026, the passive loss rules could change how much of that depreciation you can actually use.

One option is to do the cost segregation now, claim the depreciation in 2025, and carry forward any unused losses until you qualify for REPS in 2026. Another option is to wait until 2026, do a cost seg, and then a 3115 to catch up on depreciation that wasn't taken in 2025.

The benefit of waiting until 2026 is that it gives you a window to make adjustments or improvements to the property, such as upgraded appliances, flooring, or other tangible components, which can qualify as shorter-life assets under cost segregation. This can help you maximize your deductions.

A CPA can help model out which approach gives you the best benefit based on your income and goals.

Ashish Acharya · Answer

@Anthony Bailey,

Great question, and nice to meet you!

Like others have mentioned above, for tax purposes, you can only take bonus depreciation or accelerated depreciation (from a cost segregation study) in the year the property is placed in service, meaning when it’s first available for rent, even if it’s already tenant-occupied. So if the property goes into service in 2025, the cost seg must be applied on your 2025 tax return.

However, since you plan to qualify for Real Estate Professional Status (REPS) in 2026, you can do a cost segregation study in 2026 and apply a catch-up depreciation adjustment (Form 3115, Change in Accounting Method) to claim what you missed in prior years. That lets you take the accumulated depreciation in 2026 when you qualify for REPS; it’s often the cleanest way to line up the tax benefits. Like Michael said, the timing of conducting the cost seg study also matters. Running the study in 2026 gives you some flexibility to make improvements or adjustments that can qualify for shorter-life assets, like upgraded appliances, flooring, cabinetry, or other tangible components. These improvements can increase the portion of the property that depreciates faster under cost segregation. So yes, you can wait until 2026 to run the study and still capture those deductions.

And like Edgar mentioned, to help get REPS in 2026, start tracking house, keep detailed logs of real estate activities, and consider grouping your real estate efforts (like property management, acquisitions, or improvements) to maximize your hours.

Also make sure you're working with a trusted Cost Segregation company and CPA who can help you apply it.

Edgar Estrada · Answer

@Anthony Bailey

Great insights from both Brian and Michael — they’re spot-on. You can absolutely do the cost segregation in 2026 and use a Section 481(a) adjustment (via Form 3115) to catch up on missed depreciation instead of amending your 2025 return.

That timing actually lines up nicely with your plan to qualify for Real Estate Professional Status in 2026, since that’s when you could fully leverage those passive losses.

If you’re prepping for REP status, start tracking your hours now so it’s easy to document later. We built a free REPS Status tracker sheet to help investors do just that — happy to DM you the link if you’re interested.

Cost segregation the year after property is in service?

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