Cost Segregation Study

When income-producing real property passes through an estate, the tax basis is often reset to fair market value (FMV) as of the date of death (or alternate valuation date).

This step-up in basis creates a rare and powerful opportunity to re-originate depreciation, even for properties that were previously fully depreciated or never subjected to cost segregation.

We treat estate-related cost segregation not as a continuation of prior schedules, but as a discipline of capital re-origination grounded in valuation law and depreciation mechanics.

Unlike acquisitions or exchanges, estate-passed properties introduce a fundamentally new depreciation framework:

• Prior owner’s depreciation history does not carry forward
• Basis is reset to FMV under IRC §1014
• Depreciation is restarted from the inherited value
• Assets may now qualify for accelerated recovery even if previously exhausted
   

This allows cost segregation to be re-initiated from a clean capital base, anchored in estate valuation — not historical cost.

For heirs, beneficiaries, and family offices, step-up basis cost segregation can:

• Restore depreciation to long-held legacy properties
• Generate substantial non-cash tax deductions
• Improve post-inheritance cash flow
• Support refinancing, recapitalization, and portfolio restructuring
• Re-align tax depreciation with current economic reality
   

This is one of the most powerful — and underutilized — applications of cost segregation.

Estate-based cost segregation begins not with engineering — but with valuation discipline.

Our process begins with a defensible FMV determination as of:

• Date of death, or
• Alternate valuation date (when elected)
   

This may involve:

• Appraisal-based valuation
• Review of estate tax filings (Form 706)
• Reconciliation of market, income, and cost approaches
• Coordination with estate attorneys, fiduciaries, and CPAs
   

FMV becomes the new depreciation foundation, not historical cost.

Once FMV is established, we allocate:

• Non-depreciable land
• Depreciable building
• Site improvements
   

Using:

• Market-based land abstraction
• Residual valuation techniques
• Appraisal discipline
   

This ensures depreciation applies only to properly depreciable capital derived from the new FMV basis.

We then perform a full cost segregation study based on the FMV-derived improvement basis:

• Reclassifying qualifying assets into §1245 and §1250 categories
• Applying applicable bonus depreciation and recovery rules
• Establishing new recovery lives
• Fully independent of the decedent’s depreciation history
   

This is not an adjustment — it is a new depreciation origination event.

A common misconception is that depreciation “runs out” with the property.

In reality:

• Depreciation belongs to the taxpayer, not the asset
• Upon inheritance, the property receives a new tax basis
• The heir’s depreciation is independent of the decedent’s schedules
   

This allows cost segregation to be applied even when:

• The property is decades old
• Prior depreciation was fully exhausted
• No prior cost segregation existed
   

• Long-held family real estate
• Fully depreciated legacy assets
• Commercial, multifamily, hospitality, and mixed-use properties
• Industrial and special-purpose assets
• Properties entering refinancing or recapitalization
• Assets being repositioned or restructured post-inheritance
   

Our estate-related cost segregation engagements emphasize:

• Valuation-grade FMV support
• Full reconciliation to estate tax filings
• Clear separation from decedent depreciation
• Audit-ready classification schedules
• Documentation suitable for fiduciary, CPA, and IRS review
   

This ensures the depreciation reset is:
✔ Legally supportable
✔ Institutionally defensible
✔ Sustainable under audit

Generic cost segregation firms are typically not equipped to:

• Establish FMV
• Interpret estate tax filings
• Reconcile depreciation across ownership boundaries
• Coordinate with fiduciaries and estate counsel
   

This is why step-up basis cost segregation belongs in a valuation-centric practice, not a tax-only workflow.

Step-up basis cost segregation is not a tax strategy.
It is a capital re-origination discipline rooted in valuation law and depreciation mechanics.

At US Valuation, estate-related cost segregation is performed with:

• Valuation-anchored FMV establishment
• Appraisal-based land abstraction
• Fresh depreciation origination
• IRS-defensible documentation
   

If you have inherited income-producing property, a properly structured cost segregation study based on FMV may materially improve after-tax cash flow — but only when executed with valuation discipline and estate alignment.

👉 Request a Step-Up Basis Cost Segregation Consultation