Real Estate Cost Segregation in Philadelphia, Pennsylvania

Cost segregation in Philadelphia has emerged as a cornerstone of fiscal resilience for property owners facing the city’s complex 2025 tax updates. With Philadelphia ranking as the #4 life sciences market in the nation and undergoing a massive citywide reassessment of over 580,000 properties, the need for strategic depreciation has never been more urgent.

At Engineered Tax Services, we specialize in navigating the specific intersection of Philadelphia’s local business taxes and federal incentives. Whether you are developing lab space in University City or rehabilitating a historic warehouse in Fishtown, a Philadelphia cost segregation study is the key to unlocking immediate cash flow.

Cost segregation is a strategic tax planning method that aims to increase cash flow by accelerating depreciation deductions for companies and individuals based in Philadelphia, particularly in the early years of real estate ownership. It involves conducting a study that identifies and reclassifies personal property assets within a building, allowing for a shorter depreciation time for taxation purposes. This practice effectively reduces the current income tax obligations of the property owner. 

The benefit of a cost segregation study is that it segregates the cost components of a building or facility in Philadelphia into the proper asset classifications and recovery periods for federal and state income tax purposes. By frontloading depreciation deductions, it can result in significantly shorter depreciation times and thus, a deferral in tax payments.  

This strategy is particularly valuable for taxpayers who have constructed, purchased or renovated real estate, as it can identify substantial tax-saving opportunities by combining engineering, construction expertise and tax accounting rules to find the most advantageous depreciation schedule. 

Philadelphia Tax Environment: New Challenges, New Opportunities

Philadelphia real estate investors are currently managing a “high-stakes” tax year. Three critical shifts in 2025 make cost segregation a necessity:

1. The BIRT & U&O Exemption Removal

Effective for the 2025 tax year (due April 2026), Philadelphia has eliminated the $100,000 Business Income and Receipts Tax (BIRT) exemption and the $2,000 Use and Occupancy (U&O) exemption. This means virtually every commercial property owner in the city will face a higher tax burden. Engineered Tax Services uses cost segregation to generate massive non-cash deductions that can offset this new BIRT liability.

2. Realty Transfer Tax & Reassessments

As of July 1, 2025, the total Realty Transfer Tax in Philadelphia has increased to 4.578%. Coupled with a citywide reassessment that has increased the average property tax bill, investors must find internal capital. Accelerated depreciation is the most effective way to recover these high entry and holding costs.