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in Tax Savings
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and learn how cost seg delivers tax savings
up to 10% of your purchase price in year 1
Summary: Property owners can recover up to 10% of their purchase price as cash tax savings in the first year after a cost seg study. Successful investors use this increased cash flow to buy more properties or pay down debt
Cost Seg Example
Purchase price for a short term rental | $1,000,000 |
% allocated to land (not depreciable) | 20% |
| Depreciable basis | $800,000 |
% reclassified into shorter life categories with a cost seg | ~ 25% |
Assets eligible for 100% bonus depreciation with a cost seg | ~ $200,000 |
| Year 1 tax savings at a 37% federal income tax rate with a cost seg | ~ $74,000 |
Higher depreciation → lower taxable income → improved cash flow
Note: This estimate is provided for informational purposes; actual results will depend on the specific features of your property (e.g., quality of the property, condition, year of purchase, renovation work, location, etc)
Depreciation
The IRS allows taxpayers to deduct depreciation for the "exhaustion, wear and tear, and obsolescence" of property, lowering their taxable income and taxes owed.
Most taxpayers depreciate their property over 27.5 years for residential properties (excluding short-term rentals) or 39 years for commercial properties, and using the straight-line method. This assumes all components of the property have the same useful life — but this is rarely true.
Cost Segregation
Different property components have different useful lives. For example, carpet, cabinetry, electrical, and land improvements like sidewalk and fencing typically require more frequent repairs or replacement, and so have shorter useful lives (5, 7, or 15 years). Structural building components, like walls and roofs, have longer useful lives.
A cost seg study is an analysis that identifies and reclassifies components of a property into appropriate useful life buckets for tax purposes. Our engineering team builds a detailed, engineering-based "replacement cost estimate" for each component of your property. We can then allocate some of the property value into these shorter useful-life buckets.
The result of a cost seg study is accelerated depreciation to the property owner - a.k.a. higher depreciation deductions in the earlier years. If you have taxable income to offset, this can result in significant tax savings and increased cash flow. We usually see successful investors use this cash flow to reinvest in more properties, pay down debt, or make other investments.
Bonus Depreciation
Depending on when your property was placed in service, you may be able to claim up to 100% bonus depreciation. Bonus depreciation significantly accelerates the depreciation that can be deducted in year 1, materially increasing the tax savings from cost segregation.
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Our Experience
Nationwide Experience
We have completed cost segs in all 50 states over the last 20 years
Lifetime Audit Protection
We stand behind our work with comprehensive audit protection
No Studies Rejected
The IRS has accepted 100% of our studies because of our engineering-based methodology and high quality reports
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