Cost Segregation

What is Cost Segregation?Cost Segregation

Cost Segregation is an engineering-based approach to identifying assets within a building that can be reclassified into a much shorter depreciation recovery period than the building itself. Real estate properties are generally depreciated using a straight-line method of 39 years (27.5 years for residential properties). These properties are defined as real property. I can help you maximize your inherent tax benefit by identifying, classifying and segregating the personal property components of the building, resulting in depreciable lives of 5, 7 and 15 years using accelerated depreciation.

Cost Segregation improves cash-flow and the bottom line for building owners.

Cost segregation studies have become an increasingly valuable but not commonly understood tax strategy that should be considered by virtually every tax payer who owns, is constructing, renovating, or acquiring real estate.

The tax benefits of cost segregation can be applied to various types of real estate: apartments, assisted living/nursing homes, auto dealerships, office buildings, restaurants, manufacturing, hotels, medical buildings, retail space and others.

IRS supports Cost Segregation

Although cost segregation has a long history, the basis for today’s studies were established by a US Tax Court decision in 1997. Recently, the IRS has continued to validate, uphold and improve the value of cost segregation studies by enacting the 2002 and 2003 Tax Acts.

IRS Cost Segregation Guide

Who can benefit from Cost Segregation?

All properties that have been constructed, purchased or renovated since 1987 qualify for this tax benefit. To determine if a cost segregation study is appropriate the following circumstances would apply:

  • Is the cost of your building at least $750,000?
  • Have you purchased, constructed or renovated any property since 1987?
  • Do you plan on retaining your property for the next few years?
  • Do you have net income that is being taxed?

If you answered “yes” to these questions, cost segregation would be a valuable tax benefit for you.

How much does a Cost-segregation Study cost?

The fee for a cost-segregation study depends on the scope and scale of the analysis and the condition of the available documents. Potential tax savings are enormous, with studies typically paying for themselves many times over. Our contracted professional will provide a complimentary benefit analysis demonstrating the cash flow enhancement you will receive through a cost segregation study.

Contact your tax professional with questions and for more information, or you can contact me at (360) 256-7710 ext. 108