Cost Segregation is a strategic tax planning tool that allows companies and individuals who have constructed, purchased or remodeled a commercial property to accelerate depreciation. By doing so, this helps to increase cash flow and defer federal and state income taxes. The goal is to identify assets and project related costs that can be reclassified into shorter life classes than they currently fall under. Typically these components fall under a life class of 39 years, meaning they are depreciated over 39 years using a straight line depreciation method. A Cost Segregation Study will in most cases segregate and reclassify 20% – 50% of the total costs of the project, placing the property into classes of 5, 7, and 15 year depreciation life. Not only does this accelerate depreciation, but it also can lead to other benefits such as a reduction in property taxes, decreased insurance premiums, future bank loan qualifications and just a better general understanding of the property life span and future replacement costs.
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