WHAT IS COST SEGREGATION ?

Under tax law, cost segregation is the process of identifying the assets of a commercial property that can be depreciated quicker than usual. For property owners, this will lessen their current income tax obligations and improve their cash flow.

How does it work ?

Your commercial building has many different assets within it that can be separated out and classified differently. While some of the assets can only be depreciated over the standard amount of time (39 years for commercial property and 27.5 for residential), there are other assets that can be depreciated over a shorter time period. These assets will depreciate in either 5, 7, or 15 years.

What are the benefits of a cost segregation study?

• Reduced tax liability: By classifying the various components of your property, a cost segregation study can help you claim accelerated depreciation on certain components, which means you'll pay less in taxes.

• Increased cash flow: With that accelerated depreciation, you can claim larger deductions in the early years of your property's life, which means you increase your cash flow. This is especially beneficial in that first year when things are tight, and you've got unexpected expenses coming at you left and right. Having that cash flow can help ease short-term burdens.

• Increased efficiency: By identifying and separating the various components of a property, a cost segregation study can help you more efficiently manage and maintain your property, reducing operating costs over time.