Cost segregation is a strategic tax planning tool that allows property owners to accelerate depreciation deductions by identifying and reclassifying personal property assets and land improvements that are typically buried in real property.

Key Benefits

• Accelerate depreciation from 39/27.5 years to 5, 7, or 15 years
• Generate significant cash flow through tax savings
• Catch-up depreciation for properties placed in service in prior years
• Maximize bonus depreciation on qualified assets
• Reduce property tax assessments in some jurisdictions

Typical Asset Reclassifications

• 5-Year Property: Carpeting, window treatments, decorative fixtures, specialized electrical/plumbing
• 7-Year Property: Furniture, equipment, data/voice wiring
• 15-Year Property: Site improvements, landscaping, parking lots, exterior lighting
• 39-Year Property: Building structure, general electrical/plumbing, HVAC

Ideal Properties

• Purchase price or construction cost over $750,000
• Renovation projects over $500,000
• Properties with significant personal property or land improvements
• Manufacturing facilities, hotels, medical facilities
• Properties purchased in the last 15 years (look-back studies)

Important Considerations

• Engineering-based studies provide the most defensible position
• Study costs are typically tax deductible
• Depreciation recapture applies on sale (but at capital gains rates for bonus depreciation)
• State depreciation rules may differ from federal
• Passive activity loss rules may limit current year benefits