Cost Segregation

Cost segregation is a highly beneficial and widely accepted tax planning strategy utilized by commercial real estate owners and tenants to accelerate depreciation deductions and improve cash flow. Once used only by national accounting firms and the nation’s largest real estate owners, this practice has become routine for commercial property owners of almost every size.

A cost segregation study  is based on a detailed engineering analysis that is used to support the acceleration of depreciation deductions by identifying costs that can be allocated to shorter recovery periods; primarily 5, 7, and 15-year, as opposed to 27.5 (residential rental) or 39-year (commercial). A quality study provides the documentation needed to defer substantial tax payments and greatly improve cash flow. It is important to note that a cost segregation study does not create new deductions, but increases deductions in the early years of ownership. This front-loading of depreciation allows the taxpayer to take advantage of the time value of money.