Cost Segregation

Cost segregation is a sophisticated tax planning strategy that allows commercial property owners to reallocate building components into shorter depreciation schedules, accelerating tax deductions and optimizing financial efficiency. By leveraging engineering-based asset classification, this approach departs from the traditional 27.5- or 39-year straight-line depreciation, enabling the identification of qualifying assets for 5-, 7-, or 15-year accelerated depreciation periods.

Cost segregation involves a detailed analysis of a building's components to identify items like electrical systems, plumbing, lighting, and flooring that can be classified separately from the main structure. Instead of being depreciated over 27.5 or 39 years, these assets can be depreciated faster—typically over 5, 7, or 15 years—using accelerated depreciation methods like MACRS. This allows property owners to increase tax deductions early on, leading to immediate tax savings and improved cash flow.

The value of cost segregation extends beyond immediate tax savings. For real estate investors and property owners, it provides several key benefits:  

By accelerating depreciation through cost segregation, businesses can claim higher deductions earlier rather than spreading them over decades. This lowers taxable income, reducing the amount owed in taxes each year. The result is immediate tax savings, improved cash flow, and greater financial flexibility for reinvestment or business growth.

Cost segregation accelerates depreciation, allowing businesses to defer tax payments and reduce immediate tax liabilities. By freeing up capital that would otherwise go to taxes, companies gain greater liquidity to reinvest in growth, operations, or new opportunities—enhancing your overall financial picture.

By accelerating depreciation, cost segregation reduces tax burdens early, increasing after-tax income and improving cash flow. This allows property owners to reinvest savings, pay down debt faster, or expand their portfolios—ultimately enhancing the overall return on investment (ROI) and long-term profitability.

Cost segregation allows businesses to depreciate specific building components over shorter timeframes (5, 7, or 15 years instead of 27.5 or 39 years). This accelerates tax deductions, reducing taxable income and lowering overall tax liability, resulting in immediate and long-term savings.

Cost segregation should be performed by experienced professionals, such as engineers or tax specialists, to ensure accurate classification of assets and full compliance with IRS regulations. Proper execution maximizes tax benefits while reducing the risk of audits. 

Ultimately, cost segregation is a strategic tax planning tool that helps commercial real estate owners unlock immediate tax savings, boost cash flow, and increase overall ROI. By accelerating depreciation, businesses can optimize financial efficiency, enhance property value, and support long-term wealth accumulation.