Cost Segregation
What is Cost Segregation?
Cost segregation is a tax strategy that lets property owners depreciate certain building components (like flooring, lighting, HVAC, and landscaping) over 5, 7, or 15 years instead of the standard 27.5 or 39 years accelerating real tax savings early.
Cost segregation is justified under IRC §168 (MACRS), which allows different components of a property to be depreciated over their appropriate class lives, and IRC §1245 vs. §1250, which distinguishes personal property from real property. By identifying building components that qualify as shorter-life §1245 property, taxpayers can accelerate depreciation in compliance with these provisions.
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Expert Analysis: Engineers & tax professionals review construction costs and plans.
Reclassification: Qualifying assets are assigned shorter depreciation periods.
Documentation: Report includes Executive Summary, Final Report, and Form 3115 (if needed). Can be filed with the IRS anytime without amending prior returns
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Increased Cash Flow: Early deductions lower taxes and free cash for reinvestment or debt reduction.
Time Value of Money: Tax savings received sooner are more valuable, providing funds today for growth or new opportunities.
Bonus Depreciation: Certain assets qualify for first-year bonus depreciation, creating larger immediate deductions.
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