Cost Segregation studies have been around as long as there has been depreciation.  Admittedly, I have no idea if that is true or not, but as long as I have been doing taxes there have been cost segregation studies.  A cost segregation study looks at a building or piece of property and breaks it down into the different parts of that building so you can make sure you are claiming the right amount of depreciation.  There are a bunch of engineering firms around that will help with this.  You as a business owner and me as your accountant don’t have any expertise in determining which percentage of the building costs are allocated to movable fixtures; that’s why you hire an engineer.

Depending on what type of building it is, the results from a cost segregation study can vary.  Generally you will find that some of the building should be 5 year property, some should be 7 year property, some might be 15 year property and the rest is the undesirable 39 year property which is what we are trying to avoid.  If you are 10 years into owning a property and you do the cost segregation study, all of that 5 and 7 year property you discover should have been depreciated in prior years, so you are allowed an adjustment to pick up that expense all in one year.

With the top marginal tax rates approaching 50% these days, a cost segregation study can be one tool for reducing your tax liability and generating some cash flow for business owners.  Every little bit helps so this just might be worth a look.