Cost Segregation: Accelerated Asset Depreciation

Cost Segregation: Accelerated Asset Depreciation

Cost segregation is a tax strategy used in the USA to reclassify certain components of a commercial or residential rental property. This reclassification allows for a shorter depreciation period for these assets compared to the building's structural components.

By identifying assets that qualify as personal property or land improvements, such as specific electrical or plumbing fixtures, flooring, and landscaping, these costs can be depreciated over 5, 7, or 15 years instead of the typical 27.5 or 39 years for real property. This accelerated depreciation can result in significant tax benefits and improved cash flow for property owners. Cost segregation studies are typically performed by specialized firms with expertise in both tax law and construction or engineering. These studies analyze the property's costs to properly allocate them to the appropriate depreciation schedules, adhering to IRS guidelines.