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The Value of Cost Segregation Studies

By JOHN BLAKE, CPA

February 17, 2020

Cost segregation studies should be in the back pocket of every commercial real estate investor. When optimized, they can increase cash flows, reduce tax liability, and uncover missed deductions. Now, thanks to the Tax Cuts and Jobs Act of 2017, the benefits are more favorable than ever.

A cost segregation study is a strategic planning tool that can assess an entity’s real property assets and identify a portion of those costs that can be treated as personal property. By identifying the personal property to be segregated from the building, the studies can reassign costs that would depreciate over a 39-year period to asset groups that depreciate more quickly or perhaps are even expensed immediately.

The tax reform package made two simple changes, both to bonus depreciation, that will make cost segregation studies more valuable. Bonus depreciation allows individuals and businesses to immediately deduct a certain percentage of their asset costs the first year they are placed in service. The tax law did two things: It made used property eligible for bonus treatment for the very first time and increased the bonus percentage to 100 percent through tax year 2022. Prior to this law change, only new property qualified, and bonus depreciation was expected to be only 50 percent in 2019.

About the Author

John focuses on helping with the tax needs of real estate, technology and manufacturing, distribution, and wholesale companies. He works with management and business owners to review their business plan, tax planning process, identify additional saving opportunities, and ensure compliance and reporting deadlines are met. Also, John helps educate clients about the new opportunities available...

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