An Explanation
About Cost Segregation
Cost Segregation is a valuable tax strategy tool to increase cash flow for taxpayers that have purchased, constructed or renovated any type of real estate. Cost Segregation increases the amount of depreciation that taxpayers can deduct in the early years of owning a piece of real-estate, resulting in lower tax liability during these years. This improves cash flow in these early years and creates a significant time-value of money savings over the life of the real estate asset.
Cost Segregation Key Facts
- Real Estate is generally depreciated over 39 years (commercial) or 27.5 years (residential).
- A Cost Segregation study can accelerate the depreciation for 20% to 35% of the total value of the building.
- Cost Segregation studies can be performed on buildings that were just purchased or constructed as well as on those purchased or constructed years in the past.
In order for a Cost Segregation study to make sense, a taxpayer should:
- spend ~$1M or more on a real-estate asset,
- be profitable and owe income tax, and
- expect to hold the asset for at least 3 years
How Does the Cost Segregation Process Work?
This process begins with a free estimate. We’ll gather preliminary information about the building and the taxpayer’s tax circumstances. We’ll then provide a proposal that includes an estimate of financial savings and a fee quote for the study. Once formally engaged to perform a study, we’ll request detailed information about the building, often schedule a site visit, perform our analysis, and provide the deliverables and tax schedules.
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