Cost Segregation

Detailed studies that maximize depreciation

Cost Segregation

Cost Segregation is a highly beneficial and widely accepted tax strategy utilized by owners of commercial and residential rental property to accelerate depreciation deductions, defer taxes, and improve cash flow. A quality study provides the appropriate documentation needed to support the correct classification of depreciable assets related to a building and exterior improvements. It is important to note that a Cost Segregation study does not create new deductions, it simply increases deductions in the early years of ownership. This front-loading of depreciation allows the taxpayer to take advantage of the time value of money.

From a tax perspective, Cost Segregation should be considered routine for all property owners who own or manage real estate. Not only will a study support accelerated depreciation by reclassifying eligible assets into shorter lives it but can provide valuable data to support important tax-centric initiatives during the holding period of the property.

What is a Cost Segregation Study?

A Cost Segregation study is a detailed analysis conducted by tax professionals, engineers, or specialized consultants to identify and separate the various components of a commercial or rental property for tax purposes. The objective of the study is to reclassify assets from longer depreciation periods to shorter ones, in order to accelerate tax deductions and improve cash flow for the property owner.

Real Property

(Building Structure)

Depreciated over 39 years for non- residential properties or 27.5 years for residential rental properties. Personal Property

Personal Property

(Furniture, Fixtures, and Equipment)

Depreciated over 5, 7, or 15 years, depending on the type of asset. Land Improvements

Land Improvements

(Landscaping, Parking Lots, Sidewalks, etc.)

Usually depreciated over 15 years.

Eligibility of Building or Improvements

A Cost Segregation study helps to identify parts of a building or its improvements that can be depreciated faster, leading to tax savings. A building or its improvements may be eligible for such a study if:

It's a commercial, industrial, or rental residential property.
The property is owned by the taxpayer looking for tax benefits.
It qualifies for depreciation under the U.S. tax system (MACRS).
It was built, bought, or renovated after 1986.
The taxpayer has taxable income to benefit from the tax savings.
The project cost is usually $500,000 or more, so the tax benefits outweigh the cost of the study.

The WeIncentivize Advantage

The Cost Segregation landscape has evolved significantly over the past two decades. Now more than ever, property owners and accounting firms are seeking to work with established specialists such as weincentivize.

One of the most noteworthy advancements in the Cost Segregation landscape was the introduction of industry standards by the American Society of Cost Segregation Professionals (ASCSP) in 2009. For the first time ever, the ASCSP established professional certifications, setting a high bar for expertise and ethical conduct in Cost Segregation studies.

In an industry where expertise and specialization are paramount, WeIncentivize is proud to have a team that includes 6 ASCSP Certified members. While this number may seem small at first glance, it becomes highly significant when you consider that there are fewer than 50 Certified members across the nation.

WeIncentivize remains committed to providing top-notch Cost Segregation services, leveraging our extensive experience and ASCSP-certified expertise to maximize your tax benefits.

Frequently Asked Questions

What if my commercial property business is audited by the IRS - Will WeIncentivize be available to help me?

Yes. At WeIncentivize, we stand behind our Cost Segregation services. Our team provides unparalleled studies that result in meticulous attention to detail identifying construction-related costs.

How long does a Cost Segregation study take to complete?

A study typically takes 30-45 days to complete. The WeIncentivize team will keep you up to date throughout the process and answer any questions you have regarding the services being conducted.

What information do I need to provide WeIncentivize for an estimate?

The more detailed information you can provide, the better. This ensures a more accurate estimate, and we might ask for additional information to clarify our understanding of your particular project and needs.

At minimum, we need:

Capitalized costs for your project
Years that it was capitalized in
Depreciation schedule, if available
Brief description of your business
Number of floors, square footage of the building site
Property address

How much does a Cost Segregation study cost?

The IRS specifies the cost of a study should be based on the time required to perform the study; not a percentage of the projected or realized savings. The time involved in a study is driven by multiple factors.

Here are just a few aspects of the project that will impact the time involved to perform the study:

How big is the building?
What is the business activity in the building?
How many tax years will be analyzed?

What is Cost Segregation in real estate?

In real estate, Cost Segregation is a tax benefit strategy that is recognized by the IRS. It involves identifying specific components within a building or improvement project that can be classified differently for federal tax purposes—either as personal property or as land improvements, rather than as real property. This reclassification allows for accelerated depreciation schedules.

For example, the costs related to personal property components can be depreciated over a 5- or 7-year period, and land improvements can be depreciated over a 15-year period. This is faster than the standard 39-year or 27.5-year depreciation schedules typically applied to real property, thus providing potential tax advantages.

Cost Segregation