Cost Segregation

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.