Buying a building resets your depreciation clock, and the first year of ownership is where cost segregation delivers the most. A study run on a recently purchased building can move a large share of the price into faster depreciation classes and, on a qualifying purchase, deduct much of it right away. Missing that window does not kill the benefit, but it does change how you claim it.
As co-founder of Seneca Cost Segregation and a real estate investor myself, I field this question constantly from owners who just closed. What we find is that the people who ask about a study before their first return get the cleanest result, and the ones who wait can still recover everything through a look-back, just with an extra step.
My goal here is to explain how the timing works so you can act with your eyes open. I cover why the purchase year matters, how the contract date sets your bonus rate, what the study does, and how to recover missed depreciation if you bought a while ago.
TL;DR — Timing a Study on a New Purchase
- ●Year one is the best time: A study in the purchase year lets you set the accelerated schedule from the start, with no method change to file.
- ●100% bonus is back: Property acquired and placed in service after January 19, 2025 can deduct the full reclassified amount in year one.
- ●The contract date rules: Your acquisition date is the binding written contract rather than the closing, and it sets which bonus rate applies.
- ●Older purchase, no problem: A look-back study recovers missed depreciation through Form 3115 as a current-year catch-up, with no amended returns.
- ●Basis drives the payoff: Commercial property with at least $1,000,000 in depreciable basis shows the clearest return.
- ●Land is the one exclusion: A study starts by carving out land, which never depreciates, so the allocation matters from day one.
- ●Talk to your CPA on timing: Whether you apply the study on this year’s return or through a catch-up depends on when the building went into service.
Why the Year You Buy Is the Year to Act
When you place a building in service, you also choose how to depreciate it, and that choice is easiest to make cleanly at the start.
Running the study in the year of purchase means you set the reclassified schedule on your first return for the property, with no correction needed later. On a qualifying acquisition, the components that move into shorter classes can be deducted in full that year through bonus depreciation, which front-loads the benefit into the moment you likely have the most use for it.
How the Purchase Date Sets Your Bonus Rate
Bonus depreciation is generous again, and the exact rate turns on when you acquired the property.
The One Big Beautiful Bill permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, confirmed in IRS Notice 2026-11. Acquisition is fixed by the binding written contract rather than the closing or delivery, so the date you signed matters more than the date you funded.
A property placed in service from January 1 through January 19, 2025 carries a 40% rate, and one placed in service during 2024 carries 60%. For a building you constructed, acquisition is treated as occurring once costs pass 10% of the expected total, so a project that crossed that line before January 19, 2025 can fall under the lower rate even if it opened afterward.
The Study That Turns a Purchase Into a Deduction
A study takes the price you paid and separates it into the pieces the tax code treats differently.
The first move is carving out land, which never depreciates, so a fair allocation between land and improvements protects every deduction that follows. From there, components such as specialty wiring, flooring, cabinetry, decorative finishes, paving, and landscaping are identified against the recovery periods in IRS Publication 946 and priced.
On a new purchase the value shows up fast, because the reclassified components are deducted against income while the building is still fresh on your books. A commercial property with at least $1,000,000 in depreciable basis tends to produce the clearest return, though residential and short-term rentals often make sense from $250,000 to $500,000.
Bought It a Year or Two Ago? The Look-Back Still Works
Plenty of owners only hear about cost segregation after a return or two has already been filed the standard way. The deduction is still fully recoverable.
A look-back study can reach property that went into service as far back as 1987. The depreciation you should have taken is gathered into a single Section 481(a) catch-up and claimed on Form 3115 in the current tax year, so you never have to amend the prior returns to get it.
For a building bought a few years back, the catch-up can be sizable, since it collects several years of missed acceleration into one deduction. That makes a look-back one of the more powerful moves available to an owner who bought before thinking about a study.
What a Study Costs Against the First-Year Benefit
Study fees track building complexity rather than sale price, so the fee is usually small next to a first-year deduction on a qualifying purchase.
A residential study generally runs $3,000 to $5,000, standard commercial $5,000 to $15,000, and complex commercial $10,000 to $20,000 or more. Set against the reclassification a study on a recent purchase produces, the fee tends to be a fraction of the year-one benefit, which is why the return is clearest right after a purchase.
A few situations still argue for patience. A quick resale can trigger recapture that offsets the timing gain, passive activity rules can hold losses out of reach, and a low effective rate softens the payoff. Confirm all projections with your CPA before making financial decisions, because the value of the deduction depends on the income it lands against.
At Seneca, Here Is How We Handle a New Acquisition
Our process fits the rhythm of a recent close, and the opening step costs you nothing.
- ●Feasibility read. We take the purchase price, the land split, the acquisition and placed-in-service dates, and your tax position, then return an estimated reclassification and a fee before you decide.
- ●Document handoff. Your closing statement, the depreciation schedule your accountant set up, the appraisal, and any construction records if you built or renovated.
- ●On-site inspection. An engineer documents and photographs the components and site work that carry the reclassification.
- ●Engineering and review. Components are priced and classified against the Audit Techniques Guide standards, and our Head of Engineering signs every study.
- ●Delivery and CPA coordination. You receive the report with the schedules your accountant needs, plus any Form 3115 support if the purchase calls for a catch-up.
A residential or standard commercial study takes 2 to 4 weeks, and complex work such as hotels and manufacturing plants takes 4 to 8 weeks, which usually leaves room to act on a current-year purchase before the filing deadline.
Frequently Asked Questions
Below are the questions we hear most from owners who recently bought a building.
Why Owners Choose Seneca
Our engineering team is in-house, our Head of Engineering reviews every study before it ships, and audit defense comes with the engagement rather than as an extra. Across more than 10,200 studies we have never lost one to an IRS audit, and on a recent purchase that documentation is what lets you claim a large first-year deduction with confidence.
Conclusion
A recent purchase is the best possible moment to run a cost segregation study, because you can set the accelerated schedule from the very first return and, on a qualifying acquisition, deduct much of the reclassified amount right away.
If the purchase is already a year or two behind you, the deduction is still within reach through a look-back and a current-year catch-up. The one variable worth nailing down early is the timing route, which is a short conversation with your accountant.
Whether you closed last month or a few years ago, a feasibility read on the building takes only the purchase details, and running the numbers in the calculator is a fast way to see what a study would return. From there, your CPA and a good provider can settle the timing together.
