What Is Cost Segregation?
Cost segregation is the process of identifying property components that are considered “personal property” or “land improvements” under the federal tax code. The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property).
Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building. Land Improvements generally include items located outside a building that are affixed to the land and do not relate to the overall operation and maintenance of a building. Reducing tax lives results in accelerated depreciation deductions, a reduced tax liability, and increased cash flow.