What is a Cost Segregation Study?

June 19, 2014 Written by

According to Wikipedia, cost segregation is is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. According to the American Society of Cost Segregation Professionals a cost segregation is “the process of identifying property components that are considered “personal property” or “land improvements” under the federal tax code.”

A cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property).Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building.

In certain situations, this can result in significant tax savings for the business owner. However, there are many rules and exceptions so a lot of planning has to be done to determine eligibility and if the benefits outweigh the costs. Please call the office if we can help.

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Written by: Doug Rodrigues