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Should You Have a Cost Segregation Study Performed?

By Rick Hempstead, CPA

If your business owns its building, you may gain a valuable tax benefit by having a cost segregation study performed. A cost segregation study is simply a process of identifying personal property assets that are currently grouped with real property assets. A cost segregation study allows you to re-class costs classified as real property to personal property, which shortens the depreciation period.

Commercial buildings are considered non-residential real property and the tax code requires you to depreciate non-residential real property over 39 years. However, a building includes many elements that are actually personal property. The tax code allows you to depreciate personal property over as little as five years. If you segregate costs for personal property from real property, you can accelerate the depreciation of the personal property and increase your tax savings.

There are several points to consider before you decide to commission a cost segregation study.

1) Do you intend to hold the building for the foreseeable future?
2) Was the building purchased, constructed or remodeled since 1987?
3) Did the building cost greater than $200,000?

If you answered yes to these questions, a cost segregation study may be right for you.

A quality cost segregation study should include an engineering report prepared by a qualified engineer or construction expert. Our firm has partnered with such experts and can oversee the preparation of your cost segregation study. If you have additional questions, we would be glad to assist you in determining if a cost segregation study makes sense for you. Please contact Tom Albright or Rick Hempstead to discuss further.

Unfortunately, it is impossible to give comprehensive tax and accounting advice over the internet, no matter how well researched or written. Before relying on any information provided here, contact a tax or accounting professional to discuss your particular situation.