What is a Cost Segregation Study? A cost segregation study analyzes a business’s commercial real estate property to identify certain component assets that can be segregated from real property assets for tax reporting purposes. When a cost segregation study is done a business can reclassify 39 year property into shorter lived property, such as 5 and 15 year property. A study can be prepared on newly purchased or built property or even property placed in service in a prior year. A cost segregation study is designed to accelerate current tax depreciations and can recapture missed deprecation from previous years.
One of the primary benefits of a cost segregation analysis is the reduction of current taxable income and potentially reducing current taxes. This is accomplished by assessing property and identifying those assets that may be eligible for shorter depreciable lives or other allowable depreciation methods for tax purposes. Additional depreciation expense could be an important piece of the Company’s tax strategy.
Another benefit of a detailed cost segregation study is identifying and quantifying a property’s major components, including leasehold improvements, so they can be disposed of when replaced or renovated.
To see if your business could benefit from a cost segregation study, or for more information, reach out to your tax professional at TBC.