Discover how your commercial property could hold untapped tax savings. Cost Segregation unlocks opportunities to optimize your investments and keep more of your earnings working for you.
Veterans Memorial – Columbus
Cost Segregation is a tax strategy that involves a detailed analysis of a property to identify and reclassify assets into shorter depreciation categories. By accelerating depreciation, property owners can reduce tax liabilities, giving you larger tax deductions now. This IRS-recognized method defers federal and state income taxes, enhancing cash flow and overall return on investment.
Cost Segregation dates back to 1942 with IRS Publication No. 173 (“Bulletin F”) which introduced the concept of separating property components for depreciation. The Tax Reform Act of 1986 established the current Modified Accelerated Cost Recovery System (MACRS), which provided a framework for depreciation schedules and is the system used today. In 1997, the Hospital Corporation of America v. Commissioner case solidified the legal basis for cost segregation by allowing certain property components to be depreciated over shorter time frames. The Tax Cuts and Jobs Act of 2017 further enhanced Cost Segregation with 100% bonus depreciation for qualified property, and by replacing QLI, QRI, and Qualified Retail Property (QRP) with Qualified Improvement Property (QIP).
A study can be conducted at various points in a property’s lifecycle, including:
Eligible properties for cost segregation typically include buildings used in a variety of industries. The key factor is that the property must be depreciable under the Modified Accelerated Cost Recovery System (MACRS).
Office buildings, stores, shopping centers/malls, hotels & resorts, restaurants & bars
Apartment buildings, multifamily properties, single-family rental homes, short-term rental properties (e.g., Airbnb, VRBO homes)
Manufacturing plants, warehouses & distribution centers, food processing facilities, refineries & chemical plants
Medical offices, auto dealerships, self-storage facilities, entertainment venues, sports complexes & golf courses, agricultural buildings (e.g., barns, greenhouses)
To qualify for a Cost Segregation study, a property must meet specific criteria outlined by IRS guidelines. These include:
Must be used for business or income-producing purposes. Personal-use properties do not qualify.
The property must have been placed in service, meaning it is actively being used for its intended purpose.
Documentation of costs, particularly for renovations or improvements, is needed to identify and reclassify assets accurately.
Only tangible property subject to depreciation can be included. Land itself does not qualify, but land improvements (e.g., parking lots, landscaping) may.
Our Cost Segregation process is designed to detailed, IRS-compliant results with an estimated 4–6 week study timeline. By combining technical expertise with a personalized approach, we ensure the study is completed thoroughly and efficiently to maximize the value of your property assets.
Yes, a building owner can take the deduction for a property placed in service from January 1, 2006, and after. However, a designer can only take a deduction for an allocated project completed within three years of their latest federal tax return filing date.
Yes, certain residential buildings, such as apartment buildings that are four stories or more above grade, are eligible for the deduction. These buildings are classified as commercial properties under the tax code. However, smaller residential buildings, like single-family homes or those under four stories are not eligible for 179D and may instead qualify for the 45L Tax Credit for energy efficiency residential properties.
Yes, multiple designers can claim the deduction for the same building. Each designer must obtain an allocation letter from the property owner authorizing them to claim the deduction for their contributions to the building’s design.
Yes, you can claim the 179D deduction alongside other energy-related incentives, as long as there is no overlap in claiming the same expenses for multiple benefits. It’s essential to avoid double-dipping (using the same improvement costs to claim multiple tax benefits).
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