Cost segregation is a highly beneficial tax planning strategy utilized by commercial and residential rental real estate owners to accelerate depreciation deductions, defer tax, and improve cash flow. A cost segregation study (CSS) is based on a detailed engineering analysis which identifies construction related costs that qualify for faster depreciation; typically over 5, 7, and 15-years, as opposed to 27.5 (residential rental) or 39-years (commercial).
Don’t Miss Out
Although cost segregation has become routine with newly acquired and constructed facilities, there are many additional application that are still being overlooked. In fact, cost segregation can be used throughout the life of a real estate asset.
When Cost Segregation Applies:
– Concept / Feasibility – Acquisition
– Design / Construction – Redevelopment / Repositioning
My CPA is Already Doing This
Taxpayers often believe that their CPA is already taking advantage of this strategy because they have accelerated some costs (carpet, landscaping, etc). While this may be true in some cases, where the CPA brought in a cost segregation engineer, it is usually not the case. What typically happens is the CPA identifies only some of the costs that can be depreciated faster (“low-hanging fruit”) leaving a great deal of benefit on the table.
The IRS highly recommends that a CSS be performed by someone with significant engineering, construction and tax experience. The Cost Segregation Audit Techniques Guide specifically states that “a quality study will identify the preparer and always references his/her credentials, experience, and expertise in the cost segregation area.” While there are many firms who profess to have the in-house expertise to provide CSS, the reality is that few do.