About Cost Segregation
Cost Segregation is the IRS approved process of accelerating depreciation on a Real Estate asset by separating non-structural personal assets and land improvements from real property assets.
In general, buildings can be depreciated over either a 27.5 year (residential properties) or a 39 year (commercial properties) period based on their classification as Section 1250 property, but certain categories of assets within a building can be depreciated more quickly, over five, seven, or 15 years due to their reclassification as Section 1245 property.
These include non-structural personal assets, land improvements, leasehold improvements and indirect construction costs, when applicable. Separating these faster depreciating assets into their proper categories allows for the frontloading of the appropriate tax deductions, lowering upfront payments and increasing cash flow.
Why do cost segregation?
By performing a cost segregation study on an investment property, or property held for business, the owners are able to:
Accelerate income tax depreciation deductions
Recover missed accelerated depreciation deductions from previous years
Improve cash flow
Create an audit trail
Having handled thousands of projects and studies, we estimate that approximately $275,000 in Net Present Value tax savings can be generated for each $1 million of reclassified assets. And, because many states follow the federal rules regarding depreciation, you can also save money on state tax returns.
When to do cost segregation?
Cost segregation is best performed prior to the filing of the initial depreciation schedule on an asset. This is immediately after the purchase of a newly acquired building, or once a construction project is completed and placed in service.
Retail Properties / Strip Malls
Assisted Living Facilities