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Cost Segregation Study

By Sean M. Hugo, CPA
If you own commercial real estate, you need to know about this tax saving strategy:  cost segregation studies.  

 

Cost Segregation Study

A cost-seg study, as they are known, is a tax strategy that takes an entire building (real property) that would be depreciated over 39 years normally, and breaks it into real property and personal property

The result is some of the real property is still depreciated over 39 years but the personal property is depreciated over five, seven or ten years. For example, if the building cost $2.5 million you could get an extra $216,000 in depreciation the first year assuming a 40% tax rate that is $86,400 in tax savings.  

Year Before Cost Seg Study Straight Dep After Cost Seg Study Acc Dep
1 64,000 280,000
2 64,000 226,000
3 64,000 156,000
4 64,000 127,000
5 64,000 108,000
6 64,000 87,000
7 64,000 79,000
Total $448,000 $1,063,000

 

 When Can You Have A Cost Segregation Study Done On A Propety?

This tax savings strategy can even be used regardless of if you bought the commercial property in the same year you have the study done.  For example, if you bought a piece of commercial property several years ago, you could still have the study done today and realize some significant tax savings.

Cost segregation studies are just one of the tools we use help our business owners reduce the amount of income tax they pay each year.  For more information on how we may be able to reduce your tax bill give us a call at 405-759-2796.