Business Tax Strategy
Tax · Cost Segregation
Cost Segregation —
Your Building Is Hiding Cash
When you buy a commercial building, the default is to write it off a little at a time over 39 years. A rental property gets 27.5. That is a long time to wait for a deduction you already paid for. A cost segregation study takes the building apart on paper and moves the pieces that are not really "building" onto much shorter schedules.
What a study actually changes
Carpet, cabinets, specialty electrical, signage, landscaping, parking lot and site work are not the structure. Reclassified properly, they depreciate over 5, 7 or 15 years instead of 39 — which pulls years of deductions forward into today.
How it works, start to finish
An engineer walks the property
Physically, or through plans and cost records. They separate the parts of the purchase price that belong to shorter-lived assets from the parts that belong to the structure itself.
The study assigns the dollars
Every component gets a value and a life. The output is an engineering-based report your CPA can defend, not an estimate on a napkin.
Your CPA applies it
On a property you already own, this is usually done with an accounting method change rather than by amending old returns, so the catch-up deduction can land in the current year.
The deduction shows up now
Less taxable income this year and next, which means cash that stays in the business instead of going out in April.
Who it tends to fit
You own the building your business operates out of
Office, warehouse, clinic, restaurant, retail, self-storage, manufacturing space. If you bought it, built it, or did a large renovation, there is something to look at.
You bought or improved it in the last several years
A study can reach back to prior years without amending returns, so a property you have owned for a while is still fair game.
You have income the deduction can land against
A deduction only helps if there is tax to offset. Rental real estate has passive loss rules that decide where the deduction can be used, and that is worth working out before you order a study, not after.
You plan to hold it for a while
Accelerated depreciation can come back at you when you sell. That is not a reason to skip it, but it is a reason to plan the exit at the same time.
Timing, not free money
Be clear about what this is. Cost segregation does not create a deduction out of nothing. It moves deductions you were always entitled to into the years where they are worth the most to you, and lets you use the money in the meantime. For an owner in a high bracket sitting on a property, that timing is worth a great deal. For an owner with no taxable income, it may be worth waiting.
We work alongside the people you already pay
We are not here to replace anybody. Most of this work runs through partnerships with the firms already touching your payroll and your return: payroll processors, PEOs, health benefits brokers, CPAs and tax strategists. Your payroll company keeps running payroll. Your CPA keeps filing. We handle the piece in the middle that neither one is paid to go find.
If you are one of those firms, the same door works the other way. We bring your clients a savings conversation you do not have to staff, and you stay in the loop the whole way.
See who we partner withFind out what your property holds
Tell us the property, the purchase price and the year you bought it. We will tell you whether a study is likely to pay for itself before you spend a dollar on one.
Keep Reading
More in Business Tax Strategy
Sources
IRS.gov — Cost Segregation Audit Technique Guide
Educational content only. Always consult a licensed CPA before implementing.