$105,000 saved in year one, no amended returns

A client we will call Patricia had owned rental real estate for ten years, apartment buildings held through several partnerships and LLCs. In that time she had worked with a CPA, then a tax attorney, then another CPA. Every return was filed on time and every building was depreciated over 27.5 years, the default. Nobody had asked how many hours she spent on the portfolio, and nobody had mentioned cost segregation. She came to us after a Masterclass, assuming her tax bill was simply what owning real estate costs.

We started with her hours, not her buildings. Her time in acquisition, leasing and management cleared the 750-hour and more-than-half tests, so we qualified her for Real Estate Professional Status and made the grouping election that treats the portfolio as one activity. Then we commissioned engineering-based cost segregation studies on buildings she had bought years earlier. The purchase year does not matter: a look-back study catches up every dollar of depreciation that should have been taken through an automatic accounting method change on Form 3115.

The studies found $283,000 of missed depreciation, taken as a single current-year deduction with no amended returns. With her status in place the loss offset her other income instead of being suspended, and her year-one tax saving was $105,000.