What is Cost Segregation?
Cost Segregation is a powerful and widely accepted tax strategy that allows commercial real estate owners to increase cash flow through accelerated depreciation. The standard depreciation life of a commercial building is 39 years (27.5 for a residential building). In using an engineering-based Cost Segregation Study (CSS), many of a building’s components are assigned shorter depreciation lives of 5, 7 or 15 years allowing larger tax deductions up front and minimizing current tax obligations. This strategy can be used for new and existing buildings.
A Cost Segregation Study identifies and reclassifies personal property assets to shorten the depreciation time for tax purposes thus reducing current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. An engineering based study is the most accurate and desired in a quality cost segregation study.
