Cost segregation studies are an essential tool for businesses and property owners to reduce their tax liabilities by accelerating depreciation deductions. A cost segregation study is an analysis of a property's components to identify those that can be depreciated over a shorter period, such as five or seven years, instead of the standard 27.5 or 39-year period for residential and commercial properties, respectively. The primary objective of a cost segregation study is to maximize the tax benefits of depreciation by identifying assets that can be depreciated over a shorter period. By doing so, property owners can reduce their tax liability, increase their cash flow, and improve their return on investment.'
To perform a cost segregation study, a team of experts, including engineers, appraisers, and tax specialists, analyzes the property's components to determine their value and useful life. These components may include structural elements, mechanical systems, and personal property such as appliances and fixtures. Once the study is complete, the cost of each asset is assigned to the appropriate depreciation category. The shorter the depreciation period, the more significant the tax benefit for the property owner. Additionally, any assets that qualify for immediate expensing under Section 179 or bonus depreciation can also be identified and taken advantage of.
Cost segregation studies are particularly valuable for businesses and property owners who have recently acquired or constructed a property, as they can maximize their tax savings right from the start. However, even for properties that have been owned for several years, a cost segregation study can still provide significant tax benefits.
Cost segregation studies can reduce their tax liability and improve cash flow. By accelerating depreciation deductions and identifying assets that qualify for immediate expensing, property owners can maximize tax savings and improve their bottom line.