Year-End Property Tax Planning Requires Year-Round Documentation, CostSegRx Advises

As the tax year closes, real estate investors across Texas are gathering receipts and bank statements to reconstruct property spending. According to CostSegRx, an engineering-based cost segregation firm, waiting until year-end often means losing critical details that determine depreciation. “Property owners should really document all of their capital improvements and expenses throughout the year,” said Brian Kiczula of CostSegRx. “It’s not just at the year-end.” The goal is not a perfect filing cabinet but a clear record of what work was done, when, and at what cost.

Many investors lump every property cost together and try to expense it all, but tax treatment differs. When a CPA or cost segregation professional reviews spending, they typically apply the BAR test—betterment, adaptation, or restoration. Costs meeting one of those definitions generally must be capitalized and depreciated over 27.5 years for residential rentals, 39 years for commercial properties, or shorter lives of 15, 7, or 5 years. Costs that fail the test usually fall into repairs and maintenance, deductible in the year incurred. Without records, there is no reliable way to classify a cost correctly.

In CostSegRx’s experience, the gap almost always comes down to individual receipts and a clear description of the work. Some owners keep every receipt in cloud folders and track improvements with dates in a spreadsheet. Others know roughly what they spent but cannot say how it divided among flooring, windows, lighting, or a bathroom remodel. That second group is often not at fault because many contractors bill in lump sums without breaking out components. For those owners, CostSegRx uses construction cost estimating, rebuilding contractor costs from descriptions and images so each improvement can be classified.

The most useful habits are simple: save each receipt or invoice, write a short note on what was done, record the completion date, and photograph the finished improvement. Timing matters when buying and renovating in the same year. Owners who acquired a property this year need documentation plus the date improvements were placed into service relative to the property itself. If renovations finished before the property went into service, the original cost segregation study may need adjustment—for example, replacing carpet before placement removes the old carpet’s value from the purchase price allocation and adds the new carpet. If the property went into service first and a major remodel followed, the tax preparer would typically receive two separate fixed asset schedules, one for the acquisition and one for the remodel. The same applies when a property is bought one year and renovated the next, a pattern CostSegRx often sees with hotels.

Disorganization is common among landlords, but it is rarely too late to get organized. CostSegRx recently completed a study on a multi-year renovation of three buildings—a restaurant, a boutique bed and breakfast, and a group of shops—without original construction data and still produced a quality study. As long as an owner can document that improvements were made, a study can usually still be done. The practical takeaway is to stop treating documentation as a year-end task: keep records as work happens, share them with a CPA, and ask early how renovations will be classified. For Texas real estate investors, that discipline can unlock significant depreciation savings and support better-informed tax planning.