Look-Back Cost Segregation Under OBBBA: Catching Up Missed Depreciation in 2025

One of the most under-used corners of the tax code: if you've owned an income-producing property for two or more years and never had a cost segregation study performed, you can do one now — and capture ALL of the missed depreciation in a single catch-up year via Form 3115 (Application for Change in Accounting Method).

How the catch-up works

When you change your depreciation method for a property mid-life, the IRS lets you 'catch up' the difference between what you should have been depreciating (with cost seg) and what you actually depreciated (without it) — and take that delta as a §481(a) adjustment in the current tax year.

No amended returns. No penalties. One Form 3115 attached to your current-year return.

Why OBBBA makes look-back studies hot in 2025

Bonus depreciation on the look-back component is determined by the year the property was originally placed in service — NOT the current year. So the §481(a) catch-up isn't directly amplified by OBBBA.

BUT — for any reclassified property that has remaining useful life left (most 15-year items, plus newer 5/7-year additions and renovations), the future depreciation moves forward at the OBBBA-restored rates. And the catch-up itself can still be a massive lump-sum deduction in 2025.

Best candidates for a look-back study right now

• ▸Properties placed in service 2018–2022 (during the original 100% bonus era) — these often produce the largest catch-up amounts.
• ▸Multifamily acquisitions held 3+ years where no study was done at purchase.
• ▸Owners with multiple properties acquired pre-2025 — portfolio look-back studies can produce seven-figure catch-up deductions.
• ▸Recent inheritance or step-up basis situations.

If you've owned property for years without a cost seg, request a free review. We'll model the catch-up before you commit.

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