How Often Can You Do Cost Segregation?

Yes, you can perform multiple cost segregation studies on the same property. The ability to do cost segregation more than once is not restricted by the tax code. What matters is whether each study addresses new or changed depreciable basis or corrects prior errors.

Multiple cost segregation studies typically occur when an owner makes substantial improvements, adds square footage, replaces major systems, or renovates significant portions of the building. Each study should focus on the new or changed components rather than reclassifying the same items already addressed.

There is no waiting period or formal limit on cost segregation frequency. If you add depreciable basis every year, you could theoretically perform a study each year. In practice, the cost and effort of a study mean most owners perform them only when the expected benefit justifies the expense.

A new cost segregation study is typically warranted when one or more of the following events occur. These events create new depreciable basis or change the composition of the property in a way that justifies fresh analysis.

The frequency of cost segregation after renovations depends on the scale and nature of the work. Substantial renovations that add hundreds of thousands or millions in new basis often justify a new study. Smaller projects may not.

When evaluating cost seg multiple times after renovations, consider whether the new basis is large enough to produce meaningful tax benefits relative to the study cost. If you spend significant capital on tenant improvements, system upgrades, or major remodels, a follow up study can capture the shorter life components added.

Owners with ongoing capital improvement plans sometimes bundle multiple renovation phases into a single study performed after completion. Others prefer to study each major phase separately. The choice depends on timing, cash flow needs, and study cost efficiency.

If a prior cost segregation study contained errors, you can redo cost segregation to correct the mistakes. This typically involves filing a change in accounting method using Form 3115 or amending prior returns depending on the timing and nature of the error.

Common reasons to redo cost segregation include discovering that components were misclassified, basis was allocated incorrectly, or the study did not follow IRS guidelines. Your CPA can determine the appropriate correction method based on the facts.

Redoing a study for error correction does not add new basis. It changes how existing basis is classified. This can still produce tax benefits if the correction shifts basis into shorter lives or unlocks deductions that were not previously taken.

You cannot simply repeat cost segregation on the same components without a valid reason. If a component was already classified in a prior study and you have taken depreciation on it, reclassifying it again is not allowed unless you are correcting an error or the component was replaced.

Repeat cost segregation should address new work or changed facts. If you replace an HVAC system that was previously studied, the new system can be analyzed. The original system may need to be written off or partially disposed of depending on the facts.

Attempting to reclassify the same components multiple times without justification can raise audit concerns. Each study should have a clear scope that identifies what is new or changed and what remains from prior studies.

The more frequently you perform cost segregation, the more important documentation becomes. Each study should clearly identify the scope, the components analyzed, and how the new study relates to prior studies.

Documentation best practices for multiple studies

• Maintain a complete record of all prior cost segregation studies and the components identified in each.
• Document the trigger event for each new study, such as renovation invoices, building permits, or system replacement contracts.
• Coordinate with your CPA to ensure new studies integrate with prior depreciation schedules without duplication.
• Keep detailed records of component dispositions or replacements to support partial asset write offs.

Good documentation supports the position that each study is justified and that cost seg multiple times is not an attempt to manipulate deductions but a response to real capital events.

While there is no formal limit on how often you can do cost segregation, practical and economic factors constrain frequency. The cost of a study, the time required, and the benefit produced all matter.

Practical limits on cost segregation frequency

• Study cost must be justified by the tax savings. Frequent small studies may not produce enough benefit to cover fees.
• Administrative burden increases with each study. More studies mean more integration with tax returns and depreciation schedules.
• Frequent changes in depreciation can complicate tax planning and make future returns harder to prepare.
• Audit scrutiny may increase if the frequency appears aggressive or if documentation is weak.

Most investors perform cost segregation once at acquisition and again after major renovations or expansions. This balance captures the primary benefits without excessive complexity.

If you plan to perform multiple cost segregation studies over time, close coordination with your CPA is essential. Your CPA must integrate each study into the depreciation schedules, ensure no duplication, and manage any changes in accounting method.

Before commissioning a new study, discuss the scope and timing with your CPA. They can advise whether the new work justifies a study, how to handle prior components, and what documentation will be needed for filing.

Your CPA should also review the new study report to confirm it aligns with prior work and follows IRS guidelines. This review helps prevent errors that could require redo cost segregation later or create audit issues.