A cost segregation study looks at a building or piece of property and segregates the total cost into portions with shorter depreciable lives. This optimizes depreciation resulting in substantial cash flow benefits. In general, a building is classified as 39 year property. A cost segregation study can segregate some of the total cost into 5 year property, 7 year property and 15 year property. With the more liberal depreciation rules from the passage of the Tax Cut and Jobs Act cost segregation studies are even more valuable.
A cost segregation study on an existing property can yield an immediate benefit because a “catch-up” on missed depreciation is allowed by calculating a Section 481(a) adjustment. This is permitted once a qualified cost segregation study has been performed and a Form 3115 has been filed for the change in accounting method.
There are also opportunities if you do a partial disposition of old property. A cost segregation study will segregate the old asset so you can write off the remaining undepreciated basis.
If you have significant real estate holdings or have renovated or expanded your space you should consider a cost segregation study.