Commercial property owners often overlook valuable tax savings in the form of deductions available to them at the time of purchase, construction, or renovation. Fortunately, it’s not too late to claim them. Through a Look-Back Study, businesses can retroactively identify, and capture missed depreciation deductions and energy-efficient tax incentives, resulting in significant tax savings.
What Is a Look-Back Study?
A Look-Back Study is a specialized tax analysis that reviews a property’s past depreciation schedules and construction details to identify deductions that were not previously claimed. The study is typically performed by engineering-based cost segregation professionals who reclassify assets from long-life to shorter-life property categories.
This process allows taxpayers to “look back” at previous tax years and claim missed depreciation without the need to amend past returns. Instead, adjustments are made using IRS Form 3115, Change in Accounting Method, enabling an immediate catch-up deduction in the current year.
What Is a Look-Back Study Used For?
A Look-Back Study is most often used when:
- A cost segregation study was never performed when the property was first placed in service
- Energy-efficient upgrades were installed but not analyzed for Section 179D Energy Efficiency deductions
- Property renovations, tenant improvements, or additions were completed and capitalized on a depreciation schedule but the current tax law allows you to expense them as a repair – a process called a capital to expense reversal.
These studies are valuable tools for CPAs, commercial property owners, and investors who want to optimize their depreciation strategies and recover unclaimed tax benefits from prior years.
Capturing Missed Deductions Retroactively
The primary advantage of a Look-Back Study is its ability to retroactively capture accelerated depreciation. By identifying assets that qualify for shorter recovery periods (such as 5, 7, or 15-year property), owners can immediately deduct the difference between what was claimed and what could have been claimed in prior years.
This “catch-up” deduction, often referred to as a §481(a) adjustment, can provide a substantial tax benefit in the current tax year.
For example, a property placed in service several years ago may still yield hundreds of thousands of dollars in additional deductions today through a Look-Back Study.
Including Missed 179D Energy-Efficient Deductions
Look-Back Studies can also uncover missed opportunities for Section 179D energy efficiency deductions, which reward building owners and designers for energy-efficient improvements to lighting, HVAC, and building envelope systems.
Even if those improvements were made years ago, the IRS allows a retroactive review to determine eligibility under the prevailing 179D standards. This means owners can benefit from both accelerated depreciation and energy efficiency incentives, maximizing tax savings without reopening past returns. In certain circumstances for government buildings or not for profits, the “designer” of the building can receive the benefit. This is usually an architect but could also be a contractor or engineer.
This can come in handy with the looming sunset of Section 179D introduced in the OBBBA. Projects beginning construction after June 30, 2026, will no longer qualify. Projects with construction starting from 2006 until then could potentially qualify for capturing missed deductions using a Look-Back Study.
Final Thoughts
A Look-Back Study is one of the most effective ways to recover missed tax deductions and lower income taxes without the complexity of amending prior returns. Whether you’re a property owner, investor, or CPA, revisiting your existing assets could reveal significant savings opportunities.
CSSI helps you identify, document, and claim every deduction you’ve earned, past and present. Contact us today!
