Cost Segregation Study

A Cost Segregation Study can be done as a way to accelerate the deduction of capital assets.

Generally when you buy a building and put it into service, start renting it out, you depreciate the building portion of the purchase price over 39 years (non residential) or 27.5 (residential). Which results in a very small deduction each year of a much larger expense.

Using a Cost Seg Study you can segment out the items in the building, using specific valuation methods. You can determine that the roof was x% of the building costs, as were the appliances x%, carpet & flooring x%, windows x%, solar panels x%, or anything that has its own value and depreciable life less than 39/27.5 years. This will allow a greater portion of the building costs to be written off sooner rather than later if we can determine the items have a shorter life then the building which they belong.

Cost Segregation Studies can be any time while you own the asset. If they are done after prior returns have been filed claiming the 39 year depreciation, you will be required to file a form 3115 to claim the catch up deduction all in the year the asset is revalued by the study.

It can be a big deduction and help reduce taxes.