It's September.

And this is usually the point in the year when I want real estate investors asking questions before tax season starts.

Because by March, a lot of the conversation becomes:

"Here's what already happened."

One strategy that comes up constantly is cost segregation.

You buy a rental property. Normally, most of the building gets depreciated over 27.5 years for residential rental property or 39 years for commercial property.

A cost segregation study looks more closely at the building and identifies components that may qualify for shorter depreciation lives. Things like certain:

Flooring · Appliances · Cabinets · Electrical components · Landscaping · Fencing · Parking improvements · Other qualifying building components

Instead of depreciating everything together over decades, some of those costs may be classified into shorter-lived property. And that can move a lot of depreciation deductions forward.

Why this matters even more right now

Bonus depreciation had been phasing down — from 80% in 2023 to 60% in 2024. But current law restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.

So when a cost segregation study identifies eligible 5-, 7-, or 15-year property, some of those amounts may potentially be deducted immediately, in year one, instead of over decades.

Here's what that can look like:

Say you buy a rental property for $800,000. After allocating value to land, $650,000 is depreciable. A cost segregation study identifies $150,000 of that as 5, 7, and 15 year property — things like flooring, appliances, and certain electrical and landscaping components.

Under 100% bonus depreciation, that $150,000 could potentially be deducted in year one, instead of trickling out over 27.5 years.

Sounds great.

But here's the part I think gets lost on social media:

A $150,000 deduction does not automatically mean you saved taxes on $150,000.

The deduction still has to fit into your overall tax situation. If the rental activity is passive and you don't have enough passive income to absorb it, some or all of that loss may simply carry forward — unused, for now.

If you qualify for Real Estate Professional Status, or your short-term rental falls outside the rental-activity rules and you materially participate, the result may be very different. The same $150,000 deduction could offset your W-2 income, your spouse's income, or other active income this year.

Same deduction. Two very different outcomes.

So before I get excited about the cost seg number, I want to know:

• How is the property being used?
• When was it placed in service?
• Is it short-term or long-term?
• Do you materially participate?
• Do you qualify for REPS?
• Do you have passive income elsewhere?
• What does your taxable income look like this year?
• Are you planning to hold or sell the property soon?

Because creating a deduction and actually benefiting from the deduction are two different things.

The bigger question isn't "Should I do a cost seg?"

It's:

If I create this deduction, can I actually use it? And if I can use it, is this the right year to accelerate it?

Those are planning questions. Not tax-preparation questions.

Why September matters

A cost segregation study itself can sometimes be completed after year-end, and there are situations where depreciation can even be corrected on property you've owned for years. So March is not automatically "too late" for cost segregation.

But March can be too late for other planning decisions that determine how valuable that deduction actually is.

You cannot go back and materially participate in a property after the year is over. You cannot recreate hours you never worked.

The bigger point

Cost segregation can be a powerful tax tool. But the study is only one piece. The real strategy is making sure the deduction fits with everything else happening on your return.

Waqas “Vic” Hussain, CPA
​Whitestone CPA​
Based in Chicago. Serving clients nationwide.

P.S. The business owners who get the most out of tax strategy are usually not waiting until March or April to ask these questions.

They are reviewing entity structure, retirement planning, real estate, reimbursements, estimated taxes, and other planning opportunities while there is still time to act.

That is the kind of work we do through ongoing tax strategy.

If you want a second set of eyes on this before year-end, grab 30 minutes with me and I'll walk through what I'd want to review in your specific situation.