How can you save money with accelerated depreciation?

1 What is cost segregation?

Cost segregation is a tax strategy that involves identifying and separating the different components of your commercial property into shorter-lived asset classes. These asset classes have different depreciation schedules, ranging from 5 to 39 years, depending on their nature and function. By breaking down your property into smaller parts, such as land improvements, personal property, and building systems, you can allocate more of your cost basis to the assets that depreciate faster, and less to the ones that depreciate slower. This way, you can claim larger deductions in the earlier years of ownership, and lower your taxable income.

2 How does cost segregation work?

To perform a cost segregation study, you need to hire a qualified professional who has the expertise and experience in engineering, construction, and taxation. The professional will conduct a detailed analysis of your property, including its blueprints, invoices, contracts, and site visits. They will then prepare a report that documents the allocation of your cost basis among the different asset classes, and the depreciation methods and rates applicable to each one. You can use this report to support your depreciation claims on your tax returns, and to adjust your depreciation schedule if you have already filed prior returns without cost segregation.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?