video_overlay_ets
Now Playing: Next Generation Cost Segregation
Get Your Free Cost Segregation Analysis

Let's get started by talking to one of our Cost Segregation experts to see how much we can save you by getting a FREE Cost Segregation analysis. 

The History of Cost Segregation

You may hear the term “cost segregation” and know that it is a specialty tax study, but do you know the history? In the past, a building was treated as a single asset where each of the internal components that made up the building were all calculated as one single asset value that was depreciated over 39 years. This meant that over the term of 39 years, the tax deductions would remain exactly the same year to year. 

However, most components within a building do not last 39 years such as carpeting, lighting, heating or cooling systems, landscaping, and land improvements. From a tax standpoint, it is inefficient to depreciate an asset over 39 years when some of its components will truly be disposed over a 15-year period or less. Treating the building under this traditional depreciation method makes it difficult to manage cash flow.

history of cost segregation

In 1962, the Investment Tax Credit Act was enacted to increase interest in investments and reduce recession and inflation. Since then, this legislation has been changed and reinterpreted many times.

The Hospital Corporation of America v. Commissioner Impacted Cost Segregation

The monumental case to provide the largest impact on cost segregation was in the 1997 court case decision of The Hospital Corporation of America v. Commissioner. It was concluded that for certain assets, the possibilities to accelerate the timing of depreciation shall be further expanded. After the ruling, with the accelerated method of utilizing 5, 7 or 15-year rates of depreciation, certain costs are now classified as personal property or land improvements.

Without segregating costs, these assets are imposed to a 39-year or 27.5 – year depreciation rate for each expense, which results in a much higher tax liability.

Short-term asset segregation of building components that are non-structural in nature include fixtures, flooring, cabinetry, internal piping, landscape, parking lots, land improvements, mechanical systems, lighting systems, special electrical work, and building finishes. When a proprietor segregates these assets from the structural portions of the building, cost segregation can become a powerful tax planning tool for maximizing tax deductions that lead to great wealth preservation by managing a property owner’s investment in the most tax-efficient manner.

Today, property owners are recognizing additional tax benefits by applying cost segregation studies in different situations including the purchase of a new property, new facility constructions, renovations, or expansions of existing buildings. Real estate companies, franchisers, business owners, and high net-worth individuals are now using these studies with many properties within their portfolios. Not all properties will qualify for depreciation deductions so it is important that all parties understand the process and provide the most accurate information available. Often certain limitations within the law are what makes it critical for the property owner to have the most skilled professionals conducting their studies.

The final IRS regulations relating to tangible property were issued in September 2013 and provide for additional write-offs for most taxpayers. It is important to have a team of specialists that can assist in creating required capitalization policies and identifying expenses for repairs and maintenance to reduce tax liability and improve cash flow. 

Having a cost segregation analysis done on your property is the most accurate way to see how much savings you qualify for.

Having a cost segregation analysis done on your property is the most accurate way to see how much savings you qualify for.

Case Studies

Apartment Buildings

Cost Segregation study on a $2.6 Million Apartment Building in Jenks, OK

Without a Cost Segregation study, a $2.6 Million Apartment Building in Jenks, OK, purchased in 2019 would have generated a 1st year depreciation of $38,888.89. ...
Apartment Buildings

Cost Segregation study on a $392,000 Apartment Building in Hillsborough, NH

Without a Cost Segregation study, a $392,000 Apartment Building in Hillsborough, NH, purchased in 2019 would have generated a 1st year depreciation of $8,469.14. By ...
Apartment Buildings

Cost Segregation study on a $983,000 Apartment Building in Concord, NH

Without a Cost Segregation study, a $983,000 Apartment Building in Concord, NH, purchased in 2019 would have generated a 1st year depreciation of $21,237.66. By ...

Articles

estate planning

Estate Planning for Investors: Unlock Tax Savings with Cost Segregation

Estate planning is essential for a smooth transfer of assets, and it becomes especially complex for real estate investors. To minimize tax burdens and maximize ...
Read Full Article
Bonus Depreciation vs. 1031 Exchange

Smart Tax Tactics: Bonus Depreciation vs. 1031 Exchange

Taxes: they're unavoidable, but that doesn't mean you can't be strategic. As a real estate investor or business owner, understanding bonus depreciation and 1031 exchanges ...
Read Full Article
opportunity zone and cost segregation

How Cost Segregation Unlocks OZ Potential

Opportunity Zone (OZ) investments already offer attractive tax benefits, stimulating development in distressed communities while bolstering your bottom line. Combine this with a more specialized ...
Read Full Article