What is Cost Segregation?

Cost segregation is a tax planning strategy that can help real estate owners and tenants to accelerate depreciation deductions. Although standard depreciation occurs over a lengthy 39-year period, many assets within a structure–from plumbing and electrical fixtures to flooring–are not designed to last that long.

The ability to break out such assets for a five-year, seven-year, or 15-year recovery period helps accelerate depreciation, defer taxes, and improve cash flow.

Invest In An Engineering-Driven Cost Segregation Study

An engineering-driven cost segregation study can be useful at any point in the real estate cycle. Whether a property has been newly constructed, recently acquired, or undergone renovations or tenant improvements, a cost segregation study is likely to be a valuable depreciation tool. In certain cases, a look-back study can be appropriate.

Bottom line: If you own your building or if you’ve made improvements (as an owner OR a tenant), you may benefit from a cost segregation study.

Benefits Of Leveraging Cost Segregation

A detailed, high-quality engineering analysis will provide the documentation that’s essential for accelerating depreciation. It’s important to remember that a cost segregation study isn’t generating “new” deductions. Rather, it’s speeding up your ability to claim deductions. In many cases, a cost segregation study can help you accelerate the recovery period for 20% to 40% (or more) of your depreciable cost basis.

Businesses routinely write off adjusted basis when they retire fixed assets. Yet, many neglect to apply that same strategy to what is often their most significant fixed asset: their real estate. In many cases, the reason is that they simply lack the cost details that are required to properly leverage this tax strategy.

Have a question? Contact Bruce Johnson, Capstan Tax.