Definition
Cost segregation studies break a building into its component parts, reclassifying items from 27.5/39-year property to 5, 7, or 15-year property. Components like carpeting, fixtures, landscaping, and parking lots qualify for shorter lives, dramatically accelerating depreciation deductions. Combined with bonus depreciation, cost segregation can generate first-year deductions worth 30-60% of building cost.
lightbulb Example
A $2M commercial building: standard depreciation = $51K/year (39 years). Cost segregation reclassifies $600K to 5/7/15-year property. Year 1 deduction with bonus depreciation: $400K+ versus $51K—an 8x acceleration in tax benefits.
verified_user Key Points
- Reclassifies building components for faster depreciation
- Can accelerate 30-60% of building cost to 5-15 year lives
- Combined with bonus depreciation for massive year-1 deductions
- Typically costs $5K-$15K for the study—ROI is 5-10x