Published by AE Tax Advisors Team • 2026-05-06

Prior CPA Missed Cost Seg Opportunity -- $175,000 Recovered via Form 3115

The Client

Richard and Dawn Albertson, commercial real estate investors in Columbus, Ohio, had purchased a $2.6 million retail building seven years ago. Their prior CPA had depreciated it straight-line over 39 years for the entire period, generating $53,200 per year in depreciation -- $372,400 total over seven years.

The Problem

The prior CPA never recommended or performed a cost segregation study, despite the property containing extensive tenant improvements, site work, and specialized systems. The Albertsons were leaving hundreds of thousands of dollars in accelerated depreciation on the table. They were paying $95,000 per year in federal taxes.

Our Strategy

We performed a retrospective cost segregation study and filed Form 3115 to claim all missed accelerated depreciation as a single-year catch-up deduction. The study identified $285,000 in 5-year property, $125,000 in 7-year property, and $198,000 in 15-year property. The Section 481(a) adjustment -- representing seven years of missed accelerated depreciation minus what had already been claimed under straight-line -- totaled $530,000.

The Results

The $530,000 Section 481(a) adjustment eliminated the Albertsons' tax liability for the year and created carryforward losses. The one-time catch-up recovery totaled $175,000 in tax savings. No prior-year returns needed to be amended -- the entire benefit was captured on the current-year return.

Key Takeaway

If your CPA never recommended cost segregation on a commercial property, it is not too late. Form 3115 allows you to claim all missed accelerated depreciation in a single year, regardless of how long you have owned the property.