UUnlevered
Nancy · the strategy

Look back first, then reinvest the catch-up

Nancy bought her rental in 2021 and never ran a study. Five years of depreciation have been sitting on the table. A lookback claims all of it at once, and the refund funds the next move. Drag the sliders to use her real numbers.

Nancy
Nancy
Owner since 2021 · first study in 2026
2021
Acquired
$500,000
Bought the rental and placed it in service. No cost segregation study, so depreciation went uncaptured.
2026
The lookback study
$171,000
Catch-up depreciation, claimed in a single year. It is larger than her whole income.
Deduction
Income
Shelters her $100K, banks $71K for later years.
+$24,000 refund
2027
Reinvest the refund
$24,000
The refund funds a remodel and upgrade, no big bill floated up front. The new work depreciates again, a second deduction in its first year.
$24K refund $21,600 dep’n
2028
Carry & compound
≈$89,000
The remodel’s second depreciation returns cash. Invested at the chosen rate, that return compounds.
$41K freed≈$89K
The loop: look back to claim what was missed, let the refund pay for the upgrade, and let the upgrade raise what the asset earns. Each turn funds the next, with no money out of pocket to start.
Illustrative, not tax advice · methodology & assumptions

Model: building basis is value less an assumed 20% land. The 2026 catch-up combines a cost-segregation reclassification (about 30% of building, fully bonus-eligible from a 2021 placed-in-service date) with roughly five years of missed straight-line depreciation, claimed through a Form 3115 section 481(a) adjustment. The refund shelters income at an assumed 24% blended federal-plus-state rate; deductions above her income carry forward. The 2027 remodel is funded by the 2026 refund and is itself depreciated, with about 60% treated as bonus-eligible short-life property, producing a second, smaller refund. The 2028 figure invests only that second refund at the selected rate for ten years and is a hypothetical, not a projection of the property itself. STR losses offsetting active income require meeting the average-stay and material-participation tests. Confirm with your CPA.