Common Reasons Owners Skip or Delay a Study

Not ordering a study is the default for most property owners. Understanding why owners skip or delay is useful, both to recognize sound reasons and to spot the ones that rest on misunderstanding.

Reasons that are usually sound

The deductions would not be usable. If passive limits would suspend the added deductions and there is no foreseeable way to use them, holding basis for later can be sensible. See The Passive Activity Loss Rules and Cost Segregation.

The property is small. When the fee is large relative to the possible shift, skipping is reasonable. See Small and Low-Basis Properties.

A sale is expected soon. The exit costs can eat the benefit. See Selling Soon: Timing Issues With a Study.

Simplicity is valued. Some owners prefer a straightforward depreciation schedule and the peace of mind that comes with it. That is a real preference, and it has value.

Income is unusually low this year. Deferring accelerated deductions to a higher-income year can be rational.

Reasons that deserve a second look

"I already own it, so it is too late." Often it is not too late. For property placed in service in prior years, a method change filed with a return can allow a catch-up of missed depreciation, subject to current procedures. Confirm with your preparer. See Catch-Up Depreciation With Form 3115 and Method Change Versus Amended Return for Missed Depreciation.

"Studies always trigger audits." There is no reliable public basis for this claim. The stronger point is that a study should be well supported so that questions can be answered. See Audit Defense and Documentation for Cost Segregation.

"My CPA said it is not worth it." Sometimes this is a fair judgment about your facts, and sometimes it reflects unfamiliarity. Ask what analysis supports the answer, and consider a second opinion. See Questions to Ask Your CPA Before Ordering a Study.

"The recapture will wipe out the benefit." It can reduce it, but not always. It depends on the hold period, on the rates that apply, and on whether you exchange. See Depreciation Recapture on Sale: What Comes Back.

"It is only for big commercial buildings." Residential and small commercial properties can be studied, though scale matters for the economics. See property types.

"I tried a calculator and the number was small." Calculators use generic percentages. A property-specific analysis may differ, up or down. Treat the calculator as a screening tool only.

Reasons rooted in fear

Some owners worry they will make a mistake or that a study exposes them to risk. A cautious approach is to choose a qualified provider, keep good records, and file correctly. Those steps, not avoidance, are the response to the fear. See Red Flags in Cost Segregation Study Proposals.

Reasons rooted in confusion about timing

Owners sometimes believe they must decide in the year of purchase or lose the option. In many cases they can revisit later, though later methods involve more paperwork. Others believe a study can be done any time without consequences. Both beliefs are too simple. See Year of Acquisition: Why Timing Matters for a Study.

A self-audit of your reason

Write down your reason for skipping. Then label it as a fact about your situation (for example, my losses are suspended), a preference (for example, I want simplicity), or a belief you have not verified (for example, it is too late). Facts and preferences are fine reasons. Beliefs deserve a check.

Reasons that reveal a different problem

Sometimes "I skipped it" masks another issue. An owner might be reluctant because they do not trust their records, or because they do not want to invest time in a log. Those are solvable problems. Improving recordkeeping helps in many areas of the return, not only a study.

Another owner might feel uneasy about complexity in their return, perhaps because of a past error or notice. That is worth talking through with a preparer, since a clean and careful approach can reduce anxiety rather than add to it.

Cases where waiting is clearly wise

If you are about to reorganize entities, sell a large piece of the portfolio, or change your participation status, it might be best to wait until the picture is clear. Similarly, if you expect a major renovation soon, doing one study afterward may be more efficient than two. See Timing for New Construction and Renovations.

Cases where waiting has a cost

Waiting can cost something if the rules that apply to your property would be more favorable now than later, or if your income is high now and expected to fall. Because rules and income change, ask your preparer to weigh the cost of waiting explicitly rather than treating deferral as free.

Changing your mind later

There is no penalty for changing your mind. If you skipped last year and want to revisit, the catch-up route may still be available. See Catch-Up Depreciation With Form 3115.

What a good skip looks like

A good skip is documented, dated, and tied to a trigger for review. It notes your assumptions about income, hold period, and participation status. The Cost Segregation Decision Checklist provides a format. If you are not sure, a discovery conversation with AE Tax Advisors can help sort facts from beliefs without any obligation.