Cost Segregation

Maximize your cash flow and minimize your tax burden.

It sounds too good to be true, yet cost segregation is a low-risk, high-return method to recover capital investments and improve cash flow.

What is cost segregation?

A typical cost segregation study is an analysis that reclassifies components of a building from 27.5, 31.5 and 39-year depreciation to five, seven and 15-year depreciation. The benefit comes from accelerating the depreciation tax deductions, which are more valuable now than they will be in 39 years. Cost segregation is by no means an aggressive or risky strategy. Under existing IRS tax law, accelerated depreciation expense deductions are available to all federal taxpayers.

Which building components are eligible?

The benefits of cost segregation apply to construction, renovation or purchase of a commercial building. Eligible structures include:

  • Facilities constructed after 1987
  • Facilities constructed before 1986, but acquired in a reportable transaction after 1986
  • Facility renovations and additions completed after 1986

Even if your real estate project has been completed for several years, the IRS allows for recapture of the benefits from previous years. By reclassifying component assets to their correct lives, entities can deduct a “catch-up” provision in the current year. The greatest savings come from identifying assets in three broad areas: electrical, mechanical and plumbing.

Is a cost segregation study for you?

Although any non-residential commercial property may qualify for tax deferral and increased cash flow, the following types of properties have a high probability of benefiting from a cost segregation study:

  • Corporate office buildings
  • Warehouses and distribution centers
  • Hospitals
  • Medical / dental offices
  • Nursing homes
  • Apartment buildings
  • Restaurants
  • Hotels and motels
  • Strip malls and retail stores
  • Car dealerships
  • Golf courses and country clubs
  • Grocery stores
  • Airport hangers

A cost segregation study typically pays for itself and provides a sizable return on investment. The money you save from a cost segregation study can help your company in many ways. It could, for example, be used as cash flow for operations, or toward new investments and ventures.