Cost segregation is a tax strategy that allows you to depreciate parts of a building faster than the standard 27.5 or 39 years. This means you can deduct more of the building's cost from your taxes sooner, which increases your cash flow and reduces your tax bill.

Cost segregation applies to a wide range of properties including both residential and commercial. Examples include Office, retail, industrial (warehouses, manufacturing, and distribution), hotels, healthcare, data centers, self-storage, agricultural, apartments, condos, single-family homes, and townhouses.

It involves identifying and classifying individual building components (like walls, floors, fixtures) into different depreciation categories based on their useful life. This allows for faster depreciation of shorter-lived assets.

Building owners, investors, developers, and anyone who owns commercial or residential income-producing property.

Most properties are eligible, but the potential benefits are higher for:

• Newer properties or those with recent renovations
• Specialized properties (manufacturing, hotels)
• Properties with a significant amount of personal property assets

Yes, a "catch-up" study can be performed to claim missed depreciation deductions from previous years. This can result in a significant tax refund.

Yes, cost segregation is beneficial in both scenarios.

 It may impact property taxes, as some jurisdictions consider depreciation when assessing property values. Consult a property tax professional for specific guidance.

 Costs vary based on factors like property size, complexity, and the consultant's fees. It's typically a few thousand dollars but can be more for large or complex properties.

Property inspection and measurementsReview of construction documents (blueprints, invoices)Asset classification and depreciation analysisDetailed report with supporting documentation

Qualified professionals, such as:

• Cost segregation specialists
• Engineers
• Architects
• CPAs with cost segregation expertise

Typically 4-8 weeks, depending on the property's size and complexity.

The study's findings are used to adjust depreciation schedules on your tax return (Form 4562), leading to increased deductions.

The IRS provides guidelines in publications like Audit Techniques Guide (ATG) for Cost Segregation. It's essential to follow these guidelines to avoid potential audits.

These represent different asset classes with varying useful lives:

• 5-year: Computers, office equipment, light fixtures
• 7-year: Furniture, fixtures, and equipment (FF&E)
• 15-year: Land improvements, some building components

Yes, it can be combined with strategies like 1031 exchanges, opportunity zones, and others to maximize tax benefits.

Cost segregation and bonus depreciation can work very powerfully together. Bonus depreciation allows for immediate expensing of a significant portion of the cost of qualifying assets. By identifying personal property assets through a cost segregation study, you can maximize the benefits of bonus depreciation. This combination can lead to substantial tax savings in the first year of ownership.

• Cost of the study: The upfront cost might be a barrier for some.
• IRS scrutiny: Studies must be well-documented and compliant to avoid audits.

You will have to recapture the accelerated depreciation as income, but this is often offset by the tax benefits received during ownership.

• IRS website: Publications and guidelines on cost segregation.
• Cost segregation consultants: Acena Consulting specializes in cost segregation and can provide additional information if you have more questions.
• Accounting and tax professionals: CPAs with expertise in this area.