What is Cost Segregation?

Cost Segregation examines the costs included in a real estate structure to qualify them for a faster tax depreciation write-off than the 39 years normally assigned to commercial property. What can be classified as a land improvement can be depreciated over 15 years, and what is classified as personal property, over 7 or 5 years.

What kind of savings is available from Cost Segregation?

Assuming a 40% combined federal and local income tax rate and a 6% discount factor, classifying $100,000 in construction costs from 39 years to the alternatives below will create the following present value savings:

15 Years	$ 12,020
7 Years	$ 18,830
5 Years	$ 20,040

 

Candidates for Cost Segregation

Taxpaying entities with business or investment real estate with a cost, excluding land, of $750,000 or more,

Who are

• Building,
• Buying, or
• Improving

Or have

• Built,
• Bought, or
• Improved

And who will

• Be in a higher tax bracket,
• Not be limited by passive activity rules

And who intend

• To retain the property for at least 10 years.