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Cost segregation is a tool for tax planning that is commonly used by commercial property owners. By using cost segregation—separating out fixed costs from other construction costs—an owner can view how quickly a property depreciates, therefore allowing them to reduce the amount of taxes owed. A cost segregation study must occur in order for taxes to be reduced.
During a cost segregation study, property is inspected for parts that qualify for a shorter recovery period. Once these parts are identified, they are factored for accelerated depreciation deductions, which result in a reduced amount of taxes owed. This is a widely used method of depreciation to increase a property’s cash flow.
Key Points
Accelerated depreciation of property
Decreases amount of taxes owed
Common method of depreciation
ncreases cash flow
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