Real Estate Investor KnowledgeBase
Print

Chapter 6 Introduction

cost segregation chapter introBy Jason Watson, CPA
Posted Sunday, May 25, 2025

Chapter 6 explains how real estate investors can significantly accelerate depreciation by reclassifying components of a building into different asset classes allowing for time compression. Instead of depreciating an entire property over 27.5 or 39 years, a cost segregation study “tears down” the property into 5-, 7-, or 15-year property.

This chapter begins with the fundamentals, tracing how cost segregation evolved from court rulings and IRS publications, and then walks through practical application from engineered reports to DIY tools. It breaks down Section 1245 versus 1250 property classification, bonus depreciation, and how to handle partial asset disposition. The mechanics of Form 3115 and IRC Section 481(a) are covered in depth for retroactive and look-back cost segregation application.

Importantly, we also explain when cost seg is a tax-smart move (e.g., REPS, STRs, or profitable years) and when it might backfire (e.g., passive loss limitations, recapture risk, audit exposure).

Jason Watson, CPA, is a partner and the CEO of WCG CPAs & Advisors, a boutique yet progressive tax, accounting and rental property consultation firm with over 80 team members headquartered in Colorado serving real estate investors worldwide.

Jason Watson CPA LinkedIn     Jason Watson CPA Email

I Just Got A Rental, What Do I Do? 2025 Edition

Rental BookThis KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which was updated May 25, 2025, and is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.

$19.95 $15.95 $12.95

Talk to a Real Estate CPA About Your Rental Property

Please use the form below to tell us a little about yourself, and what you have going on with your investments and wealth-building objectives. WCG CPAs & Advisors are real estate CPAs, tax strategists and rental property consultants, and we look forward to talking to you!

The tax advisors, business consultants and rental property experts at WCG CPAs & Advisors are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.

We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.”

Let’s chat so you can be smart about it.

We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?

accounting services for small business

Text WCG Offices

Need to get in touch through a quick text?  We’ll respond back within a day and get going!

accounting services for small business

Call Our Amazing Team

If you need to speak to a tax professional now, give us a call and we'll get you connected.

Previous Material Participation Frequently Asked Questions
Next Cost Segregation Study
Table of Contents