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Cost Segregation Studies

A Cost Segregation Study is a defensible document to support accelerated depreciation of real estate. The purpose is to reclassify 39-year assets to more tax-favorable asset classes with 5-, 7- or 15-year lives. By converting “brick and mortar” assets (depreciated in a straight-line method over 39 years) to “personal property” (depreciated on a double-declining basis over 5 years), the real estate owner receives earlier tax depreciation that improves cash flow from the property. Net Present Value (NPV) savings are the best measure of a Cost Segregation Study. Architectural millwork, furniture, movable partitions, security systems, exhaust equipment, decorative lighting, emergency generators, land improvements, signage, wall and floor coverings and window treatments are typical examples of personal property.

A Cost Segregation Study is most applicable to buildings that are newly built, newly bought, or about to be acquired. New buildings are ready candidates because material and construction costs have generally been calculated already. Recently acquired existing buildings are also good candidates if a significant amount of depreciation has not already been taken. A Cost Segregation Study also makes excellent sense during the due diligence phase for new acquisitions.

The real estate investments best suited to undergo a Cost Segregation Study include:

  • Real estate construction valued at over $1 million
  • Building acquisitions or improvements
  • New buildings under construction
  • Existing buildings undergoing renovations or expansions

Properties with the best savings potential include:

  • Office buildings
  • Shopping centers
  • Restaurants
  • Hotels
  • Warehouses and distribution centers
  • Manufacturing and industrial plants
  • Medical facilities