Form 3115 – Application for Change in Accounting Method
At We Do Cost Segregation, we understand that tax regulations can be complex, especially when it comes to accounting methods. Form 3115, officially known as the Application for Change in Accounting Method, is a crucial tool that allows businesses and real estate investors to make strategic accounting adjustments to maximize tax benefits.
What is Form 3115?
Form 3115 is used to request an automatic or non-automatic change in accounting method with the IRS. It allows taxpayers to alter their overall accounting method or modify how they handle specific items, such as:
Transitioning from cash basis to accrual basis accounting
Accelerating depreciation for real estate assets
Expensing previously capitalized costs under Section 263(a)
Expensing previously capitalized costs under Section 263(a)
Why is Form 3115 Important for Cost Segregation?
When implementing cost segregation, property owners often need to reclassify assets for depreciation purposes. Filing Form 3115 helps real estate investors:
Claim Missed Depreciation
Filing Form 3115 allows real estate investors to catch up on missed depreciation deductions without needing to amend prior-year tax returns, leading to immediate tax savings.
Increase Cash Flow
By properly adjusting depreciation schedules, property owners can accelerate deductions, reduce taxable income, and free up more cash for reinvestment.
IRS Compliance & Approval
Changing accounting methods without filing Form 3115 can trigger IRS audits and penalties. Filing ensures compliance with tax regulations and secures IRS approval.
Automatic Accounting Method Change
Many changes in depreciation classification qualify for automatic IRS approval, making it easier for taxpayers to reclassify assets without unnecessary delays.
Section 481(a) Adjustment Benefits
Form 3115 allows taxpayers to spread adjustments over four years if needed, minimizing the impact of large tax deductions in a single year.
Simplifies Cost Segregation Implementation
A proper cost segregation study often requires reclassifying assets. Form 3115 ensures smooth integration of new depreciation schedules, maximizing tax benefits without tax return amendments.
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Discover how much you can save with our free, no-obligation feasibility analysis. Our experts will assess your property and provide a customized estimate of your potential tax benefits—ensuring you don’t leave money on the table. With nothing to lose and significant savings to gain, take the first step toward maximizing your cash flow today!
Frequently asked question
New to Cost Segregation Studies?
Whether you just bought your first property or are a seasoned investor, we work with individuals and funds of all sizes across the country.
I bought and placed a property in service in 2023. Can I still do a cost segregation study in 2024?
Yes, you can. Cost segregation studies can be conducted retroactively for properties placed in service in previous years. This allows you to claim missed depreciation and potentially amend prior tax returns to maximize savings.
I’m a high W-2 earner. Can cost segregation offset my W-2 income taxes?
Yes, in many cases. By leveraging cost segregation, you can generate depreciation deductions that may offset your W-2 income when combined with other tax strategies. Consult with your tax advisor to explore the full benefits.
I’m planning to sell my property soon. Does cost segregation still make sense?
It depends on your specific situation. Even with a short ownership period, cost segregation can provide significant tax savings. However, potential recapture taxes should be considered. Our team can help you evaluate the benefits based on your timeline.
Can I perform cost segregation on properties I purchased in prior years?
Absolutely. Cost segregation can often be applied to properties acquired in previous years, with the ability to “catch up” on missed depreciation through a change in accounting method. There’s no need to amend past tax returns.
When is the best time to get a cost segregation study?
The ideal time is soon after purchasing or placing the property in service. However, you can still benefit at any point during your ownership. The sooner you act, the quicker you’ll see the tax benefits.
What types of properties are eligible for cost segregation?
Most income-producing and investment properties qualify, including:
Short-term rentals
Apartment complexes
WarehousesHotels & motels
Restaurants
Shopping centers
Nursing homes
Gas stations
Office buildings
Industrial facilities
If you’re unsure, contact us for a free assessment.
What does a cost segregation study cost?
The cost depends on the complexity, size, and type of your property. We offer competitive pricing with clear upfront quotes. Typically, the tax savings far outweigh the cost of the study, resulting in a strong return on investment.
What documents do I need for a cost segregation study?
Common documents include the purchase agreement, closing statement, and any available property appraisals or construction records. Don’t have everything? No problem—our team can often work with limited documentation.
How long does the cost segregation process take?
Depending on the property size and service level, a study can take anywhere from 4 to 6 weeks. Our Rapid Report service offers quicker turnaround times for simpler properties.
Will cost segregation trigger an IRS audit?
Cost segregation is an IRS-recognized strategy, and when done correctly, it complies fully with tax regulations. Our reports are prepared using IRS guidelines to minimize audit risk, and we stand by our work to ensure accuracy.
Bigger Savings
More Cash in Your Pocket
A cost segregation study is like finding a hidden treasure inside your property. It lets you pull forward tax savings, keep more money, and reinvest faster. Smart investors use this to build wealth much quicker!
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