How CARES Act TPRs and Cost Segregation Create Tax Refunds for Real Estate Investors

While federal tax laws continue to be updated, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) introduced significant benefits for real estate investors and businesses. Among these, one of the most impactful yet often overlooked provisions is Temporary Procedural Relief (TPRs). These IRS-approved allowances make it easier to leverage Cost Segregation Studies, helping taxpayers accelerate depreciation, boost cash flow, and retroactively reduce tax liabilities from prior years.

We’ll discuss how the CARES Act’s TPRs works with cost segregation to unlock powerful tax-saving strategies.

Key Takeaways

• Retroactive QIP bonus depreciation unlocks major tax savings from past years.
• Cost segregation plus NOL carrybacks can create immediate cash refunds.
• Form 3115 with a 481(a) adjustment enables correction of missed depreciation.

Table of Content

• Key Takeaways
• What Are Temporary Procedural Reliefs (TPRs) Under the CARES Act?
• The Link Between CARES Act TPRs and Cost Segregation
• How to Implement: Using Form 3115 and 481(a) Adjustments
• Real-World Tax Savings Example
• Final Thoughts

What Are Temporary Procedural Reliefs (TPRs) Under the CARES Act?

Temporary Procedural Reliefs are IRS-sanctioned provisions that temporarily relax certain procedural requirements to help taxpayers take advantage of retroactive tax changes especially regarding Qualified Improvement Property (QIP) and net operating loss (NOL) carrybacks.

Key TPRs that Impact Cost Segregation:

1. Late Elections Under Section 168(k) – Allows businesses to make or revoke late bonus depreciation elections for prior years.
2. Automatic Change Procedures for Form 3115 – Permits automatic accounting method changes for depreciation corrections.
3. Revenue Procedure 2020-25 – Offers guidance for adjusting depreciation for QIP placed in service in 2018, 2019, or 2020.

The Link Between CARES Act TPRs and Cost Segregation

Cost Segregation studies identify personal property assets within a building, allowing accelerated depreciation over 5, 7, or 15 years instead of 27.5 or 39 years.

Here’s where CARES Act TPRs turbocharge those results:

1. Qualified Improvement Property (QIP) Bonus Depreciation Correction

Before the CARES Act, QIP was mistakenly excluded from bonus depreciation eligibility. The CARES Act corrected this retroactively to January 1, 2018, allowing full 100% bonus depreciation on QIP.

Example: A cost segregation study on a commercial property placed in service in 2018 now qualifies the QIP for 100% bonus depreciation—thanks to the CARES Act TPRs.

2. Net Operating Loss (NOL) Carrybacks

Due to the massive losses triggered by pandemic-related disruptions, the CARES Act allows NOLs from 2018-2020 to be carried back up to 5 years — a game-changer for property owners.

Pair this with a retroactive cost segregation study, and you can:

• Reclassify assets.
• Create a 481(a) adjustment.
• Generate a large NOL.
• Apply that NOL to prior profitable years for immediate cash refunds.

How to Implement: Using Form 3115 and 481(a) Adjustments

To claim these benefits retroactively, a Form 3115, Application for Change in Accounting Method, must be filed. This allows the taxpayer to:

• Correct QIP depreciation.
• Apply late bonus elections.
• Capture the change through a Section 481(a) adjustment in the current year.

Pro tip: A qualified cost segregation specialist should coordinate with your CPA to ensure that Form 3115 is prepared correctly and aligns with IRS guidance in Rev. Proc. 2020-25 and 2019-43.

Real-World Tax Savings

Let’s say you placed a $2 million commercial property into service in 2018. A 2024 cost segregation study identifies $500,000 of QIP. Under the CARES Act TPRs:

• You retroactively apply 100% bonus depreciation.
• You generate a $500,000 NOL.
• You carry it back to a high-income year like 2015 or 2016.
• You receive a cash refund of $150,000–$180,000 depending on tax rates.

Final Thoughts

With the TPR windows closing and bonus depreciation scheduled to phase down after 2025, the time to act is now. Whether you're a commercial property investor, syndicator, or tax advisor, combining cost segregation with the procedural flexibility of the CARES Act could result in big savings.