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Look-Back
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The IRS permits taxpayers to use cost segregation studies to adjust deprecation on properties placed in service as far back as January 1, 1987.
A look-back study will identify costs that were incorrectly classified as 27.5, 31.5, or 39-year property and reallocate them to the appropriate recovery periods; typically 5, 7, or 15-year. Upon completion of the study, the taxpayer is allowed to make an adjustment under IRC §481(a) to catch up on depreciation. The catch up, which is taken in a single year, is equal to the difference between what was depreciated and what could have been depreciated if a cost segregation study was performed on day one.
This opportunity is often overlooked because many property owners and tax advisors share a common misconception that once the 3 year statute to amend has expired, the taxpayer can no longer make a change. Fortunately, this is not true. In fact, the IRS has made it easier than ever to claim the adjustment and it can be done without filing any amended returns. The taxpayer simply files Form 3115 (Change in Accounting Method) with the cost segregation study attached. Of course a taxpayer does have the option to amend their returns as long as they are still open under statute.
Read what the IRS Cost Segregation Audit Techniques Guide says about look-back studies.