A cost segregation study is an analysis that allows for more favorable tax treatment. The goal of a cost segregation is to classify personal property, land improvements, and structure. Personal property and land improvements have shorter depreciation periods than real property. As a result, they may be eligible for faster depreciation and higher tax deductions in the short term.


Cost segregation studies can be useful after constructing, purchasing, or renovating a property. Specialized engineering firms or tax professionals perform cost segregation studies. Cost segregations involves a detailed review of the property. This includes an on-site inspection and an analysis of construction and renovation documents.


There are several potential benefits to conducting a cost segregation study, including:


Reduced tax liability: Accelerating the depreciation allows for more tax savings up front.

Improved cash flow: Faster depreciation results in higher tax deductions. Which can improve cash flow for businesses or individuals.


Enhanced financial reporting: A cost segregation study reflects the value of assets. This improves financial reporting and assessment of a deal.


It's important to note that cost segregation studies can be complex. A cost segregations study requires expertise of a tax professional or engineer. The Internal Revenue Service (IRS) has specific guidelines for cost segregation studies. It's important to conduct any study within IRS guidelines.