Year-end planning
Year-End Cost Segregation Checklist: 10 Placed-in-Service Checks
This year-end cost segregation checklist lists ten things to confirm for a property placed in service this tax year, from readiness evidence to the §168(k) acquired date, before a study and the return. For a calendar-year taxpayer, property placed in service (ready and available for its intended use) by December 31 of the tax year can be depreciated on the return for that year, and property placed in service on January 1 or later is first depreciated on the next year's return.
The longer explanation is in our article on property placed in service by December 31, for a calendar-year taxpayer, and the cost segregation qualifier shows whether a study is likely to fit the property.
Prepared by Howard Krieger, MBA, Managing Director, ClickDrag Finance.
What should you check before year-end for cost segregation?
This checklist is educational and is not legal or tax advice; confirm how each rule applies to your return with your tax advisor.
1. Confirm the placed-in-service facts
Placed in service means ready and available for its specifically assigned function, not the closing date by itself.
2. Keep dated evidence of readiness
A certificate of occupancy where local law requires one, utilities, listing or lease materials, and dated photos.
3. Gather the basis documents
Closing statement, purchase agreement, invoices or pay applications, land value support and the current depreciation schedule.
4. Check the acquired date for bonus depreciation
100% bonus applies to qualified property acquired after January 19, 2025, and the acquired date follows the written binding contract rules.
5. Know the first-year conventions
Mid-month for the 27.5-year or 39-year building, and the mid-quarter test for fourth-quarter property under §168(d)(3).
6. Decide bonus or electing out, class by class
The §168(k)(7) election out is made class by class for the year the property is placed in service.
7. Check whether the deduction can be used this year
Under §469 a rental activity is passive, so a rental loss offsets wages and other nonpassive income now only through an exception such as §469(i) or §469(c)(7).
8. Weigh whether a study fits the property
Basis large enough, a deduction usable this year, and a hold long enough to survive recapture: all three.
9. The study can be completed after year-end
The study can be completed before the return is filed; Form 3115 rules apply to a property you placed in service in an earlier tax year and still own.
10. Next step: the cost segregation qualifier
Two to four short questions on whether a cost segregation study is likely to fit the property.