WHAT IS COST SEGREGATION?
Cost Segregation is a method of accelerated depreciation used by commercial property owners to shorten the class lives of building components. This application reduces the amount of income taxes owed, which generates substantial cash flow. Owners often use this money to reinvest in their business, purchase more property, or apply to their principal payment.
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HOW DOES COST SEGREGATION WORK?
A cost segregation study accelerates the depreciation of building/renovation components into shorter depreciation categories such as 5-, 7-, or 15-year rather than the conventional 27.5- and 39-year class lives. Five- and 7-year items might include decorative building elements, specialty electrical, carpeting, and more. Fifteen-year items might consist of site utilities, landscaping, and paving. This engineering-based cost segregation study results in a much higher depreciation expense and significantly reduced taxable income for the property owner. Best of all, tax code ruling states cost segregation can be applied to categories of buildings purchased or built since 1986, including renovations. There is no need to amend your tax returns.