What is Cost Segregation?

Commercial Real Estate

MAY 02, 2023

A cost segregation study is a detailed analysis of a property's assets to identify those that can be depreciated faster for tax purposes. It is a tax planning tool that allows property owners to accelerate the depreciation of certain assets in order to reduce their taxable income and increase cash flow.

Why do a CS Study?

The goal of a cost segregation study is to break down the cost of a property into its various components, such as the building, land improvements, and personal property. By doing so, the study can identify assets that can be depreciated faster than the overall building (e.g. carpeting, lighting fixtures, outdoor signage, etc).

The IRS allows property owners to use accelerated depreciation methods for certain assets, which can provide significant tax benefits. For example, under the Modified Accelerated Cost Recovery System (MACRS), certain assets can be depreciated over a shorter period of time than the overall building. By taking advantage of these accelerated depreciation methods, property owners can reduce their taxable income and increase their cash flow.

How Do I Order One? 

A cost segregation study is typically conducted by a team of experts, including engineers, accountants, and tax professionals. The study involves a detailed analysis of the property and its assets, as well as a review of the property's construction plans, blueprints, and other documentation.

Once the study is complete, the property owner can use the results to adjust their depreciation schedules and take advantage of the accelerated depreciation methods available to them. This can provide significant tax savings and increase cash flow, which can be reinvested back into the property or used for other business purposes.

It's important to note that a cost segregation study must be conducted by qualified professionals and comply with IRS regulations. Property owners should work with experienced tax professionals to ensure that their cost segregation study is conducted properly and that they are fully compliant with IRS guidelines.

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.


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