Cost Segregation
Cost Segregation Studies for Real Estate Owners
Accelerate and optimize depreciation, reduce taxable income, and improve cash flow with IRS-aligned engineering analysis.
No Obligation • CPA-coordinated • IRS-aligned Methodology
What is Cost Segregation?
Cost segregation is a tax planning strategy that identifies and reclassifies certain components of a building into shorter depreciation lives. Instead of depreciating an entire property over 27.5 or 39 years, eligible assets may qualify for accelerated depreciation.
By accelerating depreciation, property owners can reduce taxable income and improve cash flow, creating opportunities to reinvest capital back into the property or business. Cost segregation studies are conducted using IRS-aligned, engineering-based methodologies to ensure accuracy, compliance, and defensibility.
Benefits of Cost Segregation
- Accelerate depreciation and reduce taxable income in the early years of ownership
- Improve cash flow and increase funds available for reinvestment
- Engineering-based, IRS-compliant analysis your CPA can rely on
- Recover missed depreciation through look-back studies for properties already in service
- Support long-term tax planning for renovations, expansions, and strategic property decisions
When to Conduct a Cost Segregation Study
At Acquisition
During Renovation or Expansion
During Renovation or Expansion
Performing a study shortly after purchase allows you to accelerate deductions from the start.
During Renovation or Expansion
During Renovation or Expansion
During Renovation or Expansion
Upgrades or tenant improvements can be included to capture additional depreciation.
Look-Back Study
During Renovation or Expansion
Strategic Tax Planning
Properties already in service can still benefit from a study to recover missed depreciation. Typically, one well-prepared study is sufficient per property.
Strategic Tax Planning
During Renovation or Expansion
Strategic Tax Planning
A study can support refinancing, planned sales, or other financial decisions. Performing it early usually provides the greatest cash flow advantage.
Building Types & Uses
Commercial
Commercial
Commercial
- Typical Reclassification: 25–30% of property basis
- Average First-Year Tax Savings: $15,000–$25,000
Residential
Commercial
Commercial
- Typical Reclassification: 30–35% of property basis
- Average First-Year Tax Savings: $50,000–$120,000
Case Studies
Industrial
Guest Lodging
Industrial
- Heavy & Light Manufacturing
- Laboratory
- Research Facility
- Cold Storage
- Wharehouse
- Self Storage
Commercial
Guest Lodging
Industrial
- Restaurant
- Bar/Pub
- Theater
- Bank
- Hospital
- Veterinanrian
- Salon
- Gas Station
Retail
Residential
Guest Lodging
- Shopping Mall
- Shopping Center
- Department Store
- Specialty Retailer
- Convenience Store
- Supermarket
- Auto Dealership
Residential
Residential
Residential
- Apartment
- Duplex/4-plex
- Single Family Residence
- Rown/Town House
- Condo
- Cabin
- RV Park
Why TTSG
- We partner directly with your CPA to ensure results align with your overall tax strategy.
- Engineering-based methodology aligned with IRS guidance and best practices.
- CPA-ready documentation designed to integrate seamlessly into tax filings.
- Defensible reports prepared to support IRS review if needed.
- Experience across residential and commercial properties of varying sizes and complexity.
- Efficient, transparent process with minimal disruption to property owners.
FAQ
Allocations are developed using construction cost data, industry standards, and engineering methodologies to identify and classify building components in accordance with applicable tax guidance.
Studies are prepared using IRS guidance, relevant court cases, and accepted engineering and cost-estimation practices to support depreciation classifications.
In some cases, cost segregation may be coordinated with other tax incentives, such as energy-related deductions or credits, subject to eligibility requirements and proper documentation.
No. Cost segregation changes the timing of depreciation deductions, not the total amount depreciated over the property’s life.
Cost segregation affects tax depreciation schedules. Book depreciation for financial reporting purposes is typically not impacted unless separately adjusted.
When original documentation is limited, alternative cost estimation methods may be used in accordance with accepted engineering practices, depending on the property and circumstances.
Yes. Improvements, renovations, and tenant build-outs may be analyzed separately and may qualify for accelerated depreciation depending on the nature of the work performed.
Assets are analyzed based on their respective placed-in-service dates, and depreciation is applied accordingly. This is common for properties with phased construction or ongoing improvements.
Yes. Cost segregation may be applicable to properties held by trusts or estates, subject to the applicable tax treatment and ownership structure.
Yes. Even for long-term holds, accelerating depreciation can provide earlier tax benefits and improve cash flow, though overall planning should consider future tax implications.
A cost segregation study provides a detailed asset breakdown that can be incorporated into depreciation schedules and tracked by the taxpayer and their CPA going forward.
Cost segregation is typically evaluated as part of a broader tax strategy, considering cash flow needs, income projections, entity structure, and long-term ownership plans.
(530) 750-0211
info@ttsgllc.com
(530) 750-0211
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info@ttsgllc.com
(530) 750-0211
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