What is Cost Segregation?

“What is cost segregation” is still a regular question years after the IRS endorsed cost segregation as the preferred means of calculating depreciation for real estate. Cost segregation seems to be overlooked by income tax professionals and real estate investors.

Income tax professionals are slammed during their peak season. In addition, there are still myths with some income tax professionals such as “all it does is defer taxes; it does not reduce them.” (In truth, cost segregation both reduces and defers income taxes. In some cases, it eliminates them forever.)

IRS-Endorsed

Cost segregation is an IRS-endorsed means of calculating depreciation. The IRS believes it is the most reliable method of calculating depreciation. Cost segregation is a technical process where short-life items are separated from long life items. It typically doubles or triples depreciation during the first five years of ownership.

The results are even better for assets acquired during September 28, 2017 to December 31, 2022. During this period, all short-life assets (< 20 year depreciation lives) can be depreciated during the first year of ownership. This results in real estate investors having depreciation of 20 to 50% of the total purchase prices. In many cases, the tax savings may cover 33% to 66% of the down payment to purchase the real estate.

Estimate Your Potential Tax Savings Now!

Use the calculator on the right to estimate how money you could save using cost segregation.