What is Cost Segregation?

Cost segregation is an IRS approved tax strategy that allows commercial real estate owners to accelerate the depreciation on their commercial property.  Commonly referred to as “front loading” depreciation, cost segregation accelerates the depreciation to 5 and 7 years on personal property (such as carpet, wall coverings, and decorative millwork) and 15 years on land improvements (such as sidewalks, site lighting, and fences).

A cost segregation study can be performed on various types of properties resulting in tax benefits for the owner. The tax benefits on a certain property can vary depending on the amount of land improvements and personal property such as special use equipment and interior finishes. See a list of personal property and land improvements that the IRS has approved for reclassification.

On average, the taxpayer’s cash flow (present value) is increased by 20 cents for each dollar that is reclassified. For example: a property with a cost of $5,000,000 (excluding land) should expect cash flow benefits of at least $200,000 if 20 percent of the costs are reclassified. To see how much return on investment your property may be eligible for  please see a full list of CRS recently completed projects, a sample cash flow comparison: tax benefits before and after a CRS cost segregation study, and a sample of CRS project case studies.

How does a cost segregation study work?

CRS will prepare a free preliminary analysis of your property and provide you with a no-obligation proposal which outlines your projected tax savings and improved cash flow. Upon engagement, a CRS engineer will conduct a detailed site visit including an inspection of your facility typically lasting between 2 to 6 hours. After returning to the CRS office, they will then examine architectural blueprints, construction specifications, invoices, and general contractor pay requests to identify and quantify components that qualify for reclassification and accelerated depreciation.

A cost segregation study, on average, takes 4 to 6 weeks to complete and requires only a minimal time investment by the client.

CRS will then work with your accountant to prepare any required documentation and ensure results are properly implemented.

What’s included in your final CRS study?

CRS will return a signed and certified report that is IRS compliant and includes asset classifications and descriptions, references to related tax citations and court rulings, and detailed asset-segregation spreadsheets.