Cost Segregation
What is it?
Cost segregation is a method that accelerates depreciation deductions, leading to significant tax savings for property owners. It involves identifying and reclassifying components of a property into shorter depreciation time frames. This strategy allows owners to increase their upfront cash flow by deferring federal and state income taxes.
Who qualifies?
Any real estate owner facing tax liabilities generally benefits from a comprehensive cost segregation study. Ideal candidates are corporations, partnerships, trusts, and individuals with: Newly purchased or constructed property worth a basis allocated to the building of more than $1 million.
Example
Consider a business that purchases a commercial building. Normally, the building would be depreciated over 39 years. With cost segregation, parts of the building, like fixtures and landscaping, can be depreciated over 5, 7, or 15 years, accelerating the depreciation deductions and reducing taxes in the early years of ownership.