What is cost segregation?

Cost segregation is a tax planning tool which allows property owners to accelerate depreciation. This helps capitalize on the time-value of deductions. Building components are analyzed and recategorized from the lengthy 39/27.5-year Real Property depreciable life to accelerated 5/7-year Personal Property and 15-year Land Improvement lives. It also helps in estate planning and 1031 exchanges.

Is cost segregation worth it?

It depends! Each business owner's tax scenario is different. Many benefit from increased deductions while others benefit from extended lives. Speak with a cost segregation professional to see how it may apply to your business.

Is cost segregation going away?

No, cost segregation is not going away. While bonus depreciation rates are decreasing, these rates have fluctuated dramatically in past decades. Property owners still benefit from accelerated depreciable lives. Cost segregation can also help in allocating costs prior to a 1031 exchange, in estate planning, and in partnership transactions.

How much does a cost segregation cost?

The cost of a cost segregation study is generally between $5,000 - $15,000. With an average of 15-25% of property basis being accelerated, a study is often a fantastic value to tax payers.

Can cost segregation offset capital gains?

Cost segregation accelerates depreciation deductions which reduce an entity's taxable income. While it won't offset capital gains directly, it could reduce the capital gains rate applied.

Can cost segregation offset W2 income?

Cost segregation accelerates depreciation deductions which reduce an entity's taxable income. While it won't reduce W2 income, it will reduce tax liability for business owners.

When can a cost segregation study be done?

Anytime! A cost segregation study can be completed anytime after a property is built, acquired, or renovated. Because the change in depreciation method is applied via Form 3115, no amended returns are necessary.

Who can do cost segregation study?

Cost segregation studies should be completed by tax and engineering professionals. A proper study uses engineering-based principles to identify distinct building components. Tax professionals with experience in the case law and Internal Revenue Code then apply appropriate tax treatment.