What Is Cost Segregation
Cost segregation is a powerful, IRS-accepted tax-planning strategy used to accelerate depreciation deductions, producing significant tax deferrals and increasing cash flow.
Who Can Benefit
Consider having a cost segregation study performed if you:
- Are purchasing real estate
- Are beginning a construction project
- Are expanding an existing facility or undergoing major renovations
- Are making significant leasehold improvements
- Have completed any of the above in the past
How It Works
Your real estate holdings constitute a huge capital investment. With engineering-based cost segregation studies, you can realize significant tax savings by segregating the personal property components of your project, accelerating your tax deduction over five, seven, or 15 years versus the typical depreciation period of 27.5 or 39 years. When prepared correctly, a cost segregation study can also be an excellent asset management tool.
A cost segregation study performed on a property placed in service in years past, where a tax return has already been filed, is known as a look-back study. A look-back study allows you to claim a catch-up tax deduction. This catch-up, taken in a single year, is equal to the difference between what was depreciated and what could have been depreciated had a cost segregation study been performed at the initial date the assets were placed in service. These benefits can be significant, and the change is made through the filing of a Form 3115 (Automatic Change in Accounting Method) without filing an amended tax return.
The IRS allows taxpayers to use a cost segregation study to adjust depreciation on properties placed in service as far back as January 1, 1987.
Our team of tax professionals works with specially trained engineers who have the skills and expertise required to produce high-quality studies that withstand IRS scrutiny. On average, a cost segregation study can allocate 20 – 40% of the depreciable cost basis of a property to an accelerated recovery period. Occasionally the allocation is much higher.
As an owner of commercial real estate, you can likely benefit from a cost segregation study.