Real Estate Series: Part 2 - Cost Segregation Study

What is a Cost Segregation Study?

Cost Segregation Study is a tax planning strategy that gives real estate owners the chance to accelerate depreciation deductions​. The best time to do a Cost Segregation Study is the first year the property is placed in service.​

The Normal depreciation period for real property:​

• 27.5 years for residential properties​
• 39 years for commercial properties.​

The goal of a Cost Segregation Study is to identify all property-related costs that can be accelerated and depreciated over 5,7 and 15 years. ​

Cost Seg Study Illustration: Breaking Down Components of a Building

A Commerical building with Cost Seg Study has several components with their own depreciation:

• Building Structure - 39 years
• HVAC & Plumbing - 5-7 years
• Lighting Fixtures - 5-7 years
• Furniture & Fixtures - 5-7 years
• Land Improvements - 15 years

Cost Seg Study Illustrated

In the example, the additional tax savings in the first year could be upwards of $35-40K with a Cost Segregation Study.

Cost Segregation Study Benefits

The best time to do a Cost Segregation Study is the first year the property is placed in service. However, you have the ability to perform a study retroactively and receive tax benefits.

Benefits:

• Accelerated Depreciation​
• Increased Cash Flow​
• Improved Return on Investment​
• More accurate financial reporting​
• Compliance with Tax Regulations​
• Adaptability to various property types (residential, commercial, manufacturing)​

If you're a business owner in the New York Metro Area and need help making the best decisions for your business, request a consultation with our experienced accountants today. We look forward to providing you service.