Cost Segregation Analysis
A cost segregation analysis is a tax strategy used in commercial real estate to accelerate depreciation deductions by breaking down a property's components into different asset classes. In simple terms, it identifies and reclassifies parts of a building (like lighting, flooring, HVAC systems, landscaping) that can be depreciated faster than the standard 39-year schedule for commercial property.
Instead of depreciating a $1M office building over 39 years, a cost segregation study might allow $200K of assets to be depreciated over just 5 or 7 years. This can be ideal in situations where an investor is anticipating a shorter hold period, and would like to harvest more profit upfront.
Key Benefits Include:
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Increased cash flow in early years
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Reduced taxable income
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Maximized depreciation deductions
How it Works:
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A specialist analyzes the property
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They separate building components into categories depreciable over 5, 7, or 15 years instead of 39
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The result: larger tax deductions sooner
The Result:
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Direct tax savings into the tens or even hundreds of thousands of dollars