The Ins and Outs of Cost Segregation
What is cost seg?
Cost seg or cost segregation is the process of accelerating deprecation for an owner’s real estate property so they can increase cash flow by reducing taxes owed to the IRS.
How does cost seg work?
Residences such as homes or apartments depreciate over 27.5 years while commercial properties such as hotels or offices depreciate over 39 years.
Any real estate property generating rental income may depreciate its value over time but a cost seg study will speed up the process so most of the property depreciates over the first five years instead.
Okay, but how does cost seg really work?
The process of cost seg works by separating as much 27.5 or 39 year real property assets into shorter 5, 7 or 15 year personal property assets as possible so they depreciate much faster than normal.
Property assets are anything and everything that make up a property, from computers and flooring to landscaping and concrete.
Once all property assets have been fairly priced and correctly categorized, the new accelerated property depreciation is calculated and compiled into a report.
Why do cost seg?
Cost seg significantly increases cash flow by reducing taxes owed for any individual or business owning real estate property.
Cost seg regularly depreciates an owner’s property by 25-40% of the total value within the first five years of the study done.
Please try the quick and free calculator to get an immediate tax deduction estimate of your property and visit our case studies page for further research.
When to do cost seg?
The best time to do a cost seg study for a property is the year of acquisition, completed new construction or finished improvements.
Even if you have owned a property for years, a cost seg study is viable but requires an additional method change.
Cost Seg Calculator
Find out how much you could benefit by using the calculator below.
Frequently Asked Questions
What is cost seg?
Cost seg or cost segregation is a tax method used to accelerate depreciation of an owner’s real estate property if that property is generating rental income.
If an owner of a residence or commercial property is renting, they are allowed to depreciate that property’s value to reduce their taxes owed with or without cost segregation.
But with cost segregation, a real estate owner can depreciate most of their property over the first 5 years instead of 27.5 years for residences or 39 years for commercial properties.
How does cost seg work?
Cost seg works by moving as much 27.5 year or 39 year real property assets into shorter 5, 7 or 15 year assets so they depreciate faster.
The IRS allows real estate owners generating rental income to gain cash flow by reducing their taxes owed through this tax filing method.
What kind of properties qualify?
Any properties generating rental income qualify.
That includes all residential rentals such as 100+ unit apartments, duplexes, single family homes, etc.
That also includes any commercial properties such as offices, warehouses, hotels, retail spaces and the like.
Please visit our Case Studies page for further research.
Do you work with my accountant?
Yes, we do.
We work very closely with our client’s accountant(s) to work through any tax complications and ensure taxes are filed correctly.
What if I have owned the property for years?
Even if you have owned a property for years, it is still eligible for cost seg.
Once a property is generating rental income, its depreciation may begin starting with the placed in service date not the date of ownership.
What if the previous owner did cost seg?
That doesn’t matter.
Once a property changes ownership, the property has a new tax situation with a different owner and is ready for a new cost seg study.
What about a 1031 exchange property?
Properties obtained through 1031 exchanges are still viable for cost seg.
The price difference of the exchange and any prior depreciation will have to be factored in.
How much benefit can I expect?
When should I do a cost seg study?
How much does a study cost?
How long does a study take?
What if I sell my property?
You will have to pay back some of the tax deductions if you have owned the property for less than 15 years when sold.
The IRS will calculate the depreciation of said property under your ownership as if there was no accelerated depreciation from a cost seg study and recapture the difference.
What am I paying for?
Your paying for a DW cost seg study which includes our expert tax opinion, report and free audit support (up to 6 hours).
Please review a real report with a minimum amount of data omitted to protect privacy.
