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The basics of cost segregation

February 27, 2024 Video 3 min watch
Authors:
Jonathan Winterkorn Lawrence Knutson Jeremy Sompels
Many owners of income-producing real estate are unaware that they can maximize the tax savings on their investments with an IRS-approved project called a cost segregation study. Are you one of them?
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With a cost segregation study, you can take full advantage of tax-saving strategies that will reduce your tax liability, improve near-term cash flow, and help boost your bottom line.

What is cost segregation?

Simply, cost segregation is a tax deferral strategy that identifies assets within a building that can be depreciated over a shorter period than the 39-year standard method. It can identify substantial tax-saving opportunities for taxpayers who have constructed, purchased, or renovated a facility. The process combines engineering, construction, and tax expertise to maximize tax deductions for prior and current real estate investments.

The benefits of a cost segregation study

Using the standard method, depreciation of your commercial property spans evenly over 39 years for all assets or parts of the building. However, the IRS will allow shorter depreciable lives on certain components of the building, like a portion of your HVAC, plumbing, electrical, or building finishes. With a cost segregation study, a portion of your building’s assets could be allocated into a shorter life bucket and thereby qualify for bonus depreciations. The value of those assets could allow property owners to invest in additional income-producing properties.

In the long term, a cost segregation analysis can help property owners claim a disposition loss when making repairs or improvements to a building’s assets, such as installing a new roof. As a result, the benefits of a cost segregation study go beyond the first year as you repair and replace your building’s assets over time.

We can help with cost segregation

Our team of tax professionals, which includes accountants, engineers, and attorneys, will conduct a thorough, multifaceted cost segregation study that reveals and quantifies items that qualify for a shorter depreciable life. The result? You’ll be able to:

  • Take advantage of bonus depreciation.
  • Use the extra cash flow to invest in additional income-producing properties.
  • Leverage the value of your depreciable assets for renovations and improvements.
  • Accelerate your tax depreciation.
  • Save tax dollars from your depreciable asset investments. 

Contact our authors

A cost segregation study requires an experienced team of accountants, engineers, and attorneys. Get the most out of your property investments with the support of our integrated team.

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