Cost Segregation Studies are a tax planning strategy that allows real estate owners to increase cash flow by accelerating depreciation deductions on certain components of a property.
These studies involve a detailed engineering analysis that identifies and separates the cost of various components of a property, such as personal property and land improvements, from the cost of the building itself. By reclassifying these components into shorter depreciation schedules—ranging from 5 to 15 years, compared to the standard 27.5 or 39 years for residential and commercial properties, respectively—property owners can significantly reduce their taxable income in the early years of ownership.
For example, in a commercial property, items like carpeting, specialized lighting, and landscaping can be classified separately, allowing the owner to depreciate these costs more quickly. This can result in substantial tax savings and improved cash flow, making cost segregation studies a valuable tool for property investors and owners.
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