Ask An Expert: What is a Cost Segregation Study?

What is a Cost Segregation Study?

The IRS requires an investment property to be depreciated (expensed/ amortized) over either a 27.5 period for rental properties or 39 year period for non-rental properties. An independent engineering cost segregation report, permissible by the IRS, breaks down the building into detailed components with their associated values. This report shows the IRS in detail the value of individual components within the building (concrete, masonry, steel, finishes, equipment, furnishings, plumbing, HVAC, electrical, land improvements, and other related components) that may exhaust over a much shorter period versus the 27.5 or 39 years standard amortization. The report basically allows the property owner to expense 20% to 45% of the building immediately versus over the 39 years. The IRS allows these studies for new buildings and any buildings owned less than 15 years with proper documentation. These reports can help with writing off a tremendous amount of the investment immediately on new properties or allow a property owner to go back up to 15 years to generate significant tax deductions for under amortizing their building.

If you have any more questions about how a cost segregation study can help you, contact you ETS sales director or email