Cost Segregation

A cost segregation study is an analysis that reclassifies components of a building from 27.5, 31.5 and 39-year depreciation to 5, 7, and 15-year depreciation. The benefit comes from accelerating the depreciation tax deductions, which are more valuable now than they will be in 39 years. Under existing IRS tax law, accelerated depreciation expense deductions are available to all federal taxpayers.

What is eligible?

The benefits of cost segregation apply to construction, renovation or purchase of a commercial building. Eligible structures include:

Buildings and facilities constructed after 1987 or acquired in a transaction after 1986
Renovations and additions completed after 1986

Even if your real estate project has been completed for several years, the IRS allows for recapture of the benefits from previous years. By reclassifying assets to their correct lives, entities can deduct a “catch-up” provision in the current year.

Examples of properties that may benefit from a cost segregation study:

Airport facilities
Apartment buildings
Car dealerships
Distribution centers
Golf courses and country clubs
Grocery stores
Hospitals
Hotels and motels
Medical / dental offices
Nursing homes
Office buildings
Restaurants
Strip malls and retail stores
Warehouses