Cost Segregation FAQs

What is cost segregation? Will a cost segregation study benefit me? Your cost segregation frequently asked questions are answered right here.


What is a cost segregation study?

The IRS requires an investment property to be depreciated (expensed/amortized) over either a 27.5 period for residential investment properties or 39-year period for commercial investment properties. An independent engineering 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 depreciation. The study allows the property owner to reclassify and accelerate depreciation on, on average, 20% to 45% of the building versus over the 27.5 or 39-year class life. 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.

When should a cost segregation study be done?

A cost segregation study is best done when a property is purchased, constructed, or remodeled after December 31, 1986 and if the owner will be paying property taxes for a few years.

How long does it take to complete a cost segregation study?

All properties and cases are different. However, a cost segregation study will typically take between 4 to 6 weeks to ensure a quality cost segregation study.

How much does a cost segregation study cost?

The estimate of the cost segregation is typically done after the property in question has been surveyed. The more important question is to ensure that your cost segregation specialist is qualified to conduct an engineered study.

What does a quality cost segregation study entail?

The IRS defines a quality cost segregation study as “a study that is both accurate and well-documented in the process of classifying, explaining the rationale, and substantiating the cost basis of each asset while reconciling total allocated costs to total actual costs.”

Can cost segregation studies be performed on buildings built or acquired in a prior year?

Yes. Property owners can prepare a cost segregation look-back study on their current property and re-calculate the depreciation for the previous tax years based on their reclassified asset costs.


Recent Posts

Contact Us