What is Cost Segregation in Real Estate?

What is Cost Segregation in Real Estate?

Cost segregation is a tax strategy that accelerates depreciation deductions by identifying and reclassifying personal property assets and land improvements, which typically have shorter depreciation lives than buildings, thereby allowing property owners to reduce taxable income and increase cash flow.

Examples of assets that can be reclassified through cost segregation in real estate include:

  1. Interior Components: Carpeting, wall coverings, and decorative lighting.
  2. Exterior Improvements: Parking lots, landscaping, and signage.
  3. Mechanical Systems: HVAC systems, plumbing, and electrical systems specific to certain equipment.
  4. Specialty Fixtures: Custom cabinetry, countertops, and specialized storage systems.
  5. Site Improvements: Sidewalks, curbs, and outdoor lighting.

By identifying and reclassifying these assets, property owners can take advantage of accelerated depreciation, leading to significant tax savings.

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