Real Estate Cost Segregation: A Smart Way to Lower Your Tax Bill
If you own income-producing real estate—like rental properties or commercial buildings—cost segregation could be a game changer for your taxes.
Most property owners depreciate their buildings slowly over 27.5 or 39 years. But with a cost segregation study, we can break down the property into smaller parts—like lighting, flooring, appliances, and landscaping—and depreciate many of those components over just 5, 7, or 15 years instead.
Why does that matter?
It means bigger tax deductions sooner—which can significantly reduce what you owe in taxes and improve your cash flow. You can use those tax savings to reinvest in your business, save for future goals, or simply keep more of your hard-earned money.
Even though the rules are complex, our team of experts—including CPAs and cost segregation specialists—handle the details for you, making sure everything follows IRS guidelines.
If you’ve recently purchased, renovated, or built a property, or if you own investment real estate and haven’t done a cost segregation study, now may be the time to take advantage of this powerful strategy.
Let’s find out how much you could save—reach out today for a complimentary consultation.
What is Cost Segregation?
Cost segregation is a strategic tax planning tool that allows real estate owners and investors to accelerate depreciation deductions on their commercial or residential income-producing properties. Instead of depreciating the entire property over the traditional 27.5 or 39 years, a cost segregation study identifies and reclassifies specific components of the property—such as fixtures, flooring, landscaping, and certain electrical systems—into shorter depreciation categories (typically 5, 7, or 15 years).
How It Reduces Taxes:
By accelerating depreciation on parts of the property, you can significantly increase your deductions in the early years of ownership. This reduces your taxable income and, in turn, lowers your tax liability. The cash saved from paying less in taxes can then be reinvested back into the business, used to pay down debt, or help improve cash flow.
Example:
Without cost segregation, a $1 million building might be depreciated evenly over 39 years—yielding about $25,600 in deductions per year. With cost segregation, a portion of that $1 million (say, $300,000 worth of assets) could be depreciated over 5 to 15 years, giving you much larger deductions in the early years—possibly $60,000 or more per year for the first few years.
Who Should Consider It?
Cost segregation is ideal for anyone who:
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Owns commercial or rental real estate
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Recently purchased, constructed, or renovated a property
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Wants to reduce taxable income and improve cash flow
It’s a powerful tool when used properly, often done with the help of a CPA and cost segregation specialist to ensure compliance with IRS guidelines.