Cost Segregation for New Construction Properties

Why New Construction Is the Ideal Candidate

New construction properties are among the best candidates for cost segregation studies. When you build a property from the ground up, you have detailed construction records, invoices, and contracts that document exactly what was spent on each component. This granularity makes the engineering analysis more precise and the resulting reclassifications more defensible.

Additionally, new construction often includes more 5-year, 7-year, and 15-year property than older buildings. Modern builds feature extensive landscaping, paved surfaces, specialty lighting, built-in appliances, and other amenities that are prime candidates for accelerated depreciation.

The Advantage of Detailed Construction Records

One of the key factors in a cost segregation study is how accurately component costs can be determined. With new construction, the cost data comes directly from builder invoices, subcontractor contracts, and material receipts. This is significantly more precise than the estimation methods required for older properties where original construction records may not be available.

The IRS Cost Segregation Audit Techniques Guide favors studies backed by detailed cost records. A cost segregation study on a new construction property, supported by actual construction documentation, represents the gold standard for audit defense.

Timing Your Study for Maximum Benefit

For new construction, the optimal time to order a cost segregation study is as soon as the property is placed in service. Placed-in-service means the property is ready and available for its intended use, whether that is the date you receive a certificate of occupancy, the date the first tenant moves in, or the date you list it for rent.

Ordering the study in the same tax year as placement in service ensures you capture the full first-year deduction, including any applicable bonus depreciation. Delays can mean missing the optimal deduction window, especially as bonus depreciation rates phase down annually.

Typical Results for New Construction

Stratum's experience with new construction studies shows that 25 to 40 percent of the depreciable basis is typically reclassified into shorter-lived categories. Properties with extensive outdoor improvements (pools, outdoor kitchens, elaborate landscaping, large driveways) tend to be at the higher end of that range.

For a $600,000 new construction rental with a $480,000 depreciable basis, a 35% reclassification rate means $168,000 in assets moved to shorter-lived categories. With bonus depreciation, the first-year deduction on those assets alone could exceed $100,000, depending on the applicable rate.

Get Your New Construction Study Started

If you are building a rental property or recently completed construction, do not wait to explore cost segregation. The sooner you act, the more deduction you capture. Stratum Cost Segregation delivers engineering-based studies for new construction properties nationwide. Start with a free estimate to see what your build could yield in accelerated depreciation.