Understanding the Power of a CSSI Cost Seg Study

A cost segregation study breaks down a property’s construction or acquisition cost into components with different depreciation schedules. This allows building owners to accelerate deductions, reduce current-year taxable income, and increase cash flow.

Whether your building was placed in service this year or in prior years, the application steps depend on timing — and the CSSI study provides a clear roadmap.

1️⃣ When Your Building Was Placed in Service This Year

If the property is new or has just been placed in service, this is your first year of depreciation.

• Use the CSSI study’s cost detail pages to build your depreciation schedule.
• The study divides costs into categories — typically 5-year, 15-year, and 39-year lives.
• You don’t need to attach the report to your tax return. Simply update your depreciation schedule based on CSSI’s breakdown.

✅ Example:
Out of an $82,831 total cost, 4.3% may qualify as 5-year property (e.g., flooring, lighting), 21.4% as 15-year site improvements (e.g., parking, signage), and 74.3% as 39-year structure.

2️⃣ When the Building Was Placed in Service in a Prior Year

If you’ve already taken depreciation on the building, you’ll need two key steps:

A. File Form 3115 – Change in Accounting Method

• This form adjusts your prior depreciation to reflect the CSSI study results.
• It uses Change Number 7 (automatic consent) and includes a Section 481(a) adjustment — typically a negative adjustment that increases deductions in the current year.

B. Calculate Your New Depreciation Expense
Recalculate depreciation as if the CSSI results had been in place since the property’s in-service date. Your tax professional will carry these forward into the current and future years.

3️⃣ When You Have Dispositions or Renovations

For properties that have been improved or partially replaced, CSSI’s Disposition Study section identifies:

• Disposition Costs — components removed or replaced that can be written off through Form 4797.
• Removal Costs — demolition or removal labor that can be expensed in the year incurred (requires Form 3115, Change #21).

✅ Example:
If a $100,000 renovation replaced $20,000 of old building components, that $20,000 can be deducted immediately as a disposition loss, while the removal labor cost may also qualify for deduction.

💡 Why This Matters

Applying your CSSI study correctly ensures:

• Compliance with IRS rules under Section 481(a)
• Immediate deduction of past under-depreciated assets
• Accurate write-offs for replaced building components
• Stronger after-tax ROI through accelerated depreciation

📊 Schedule Your Tax Logic™ Review

At Tax Logic™, we partner with CSSI to integrate cost segregation results into a complete tax strategy — combining 100% bonus depreciation, 179D energy deductions, and entity structure optimization for developers and investors.

👉 Schedule a Tax Logic™ Review to see how much after-tax ROI you’re leaving on the table.