What is Cost Segregation?
Cost segregation is a tax strategy used by commercial property owners to accelerate the depreciation of a property by separating out personal property, such as appliances and fixtures, from the building's real property, such as the foundation and structural components.
Under the tax code, real property is generally depreciated over a longer period of time than personal property, which can result in higher tax liability for the property owner. By separating out the personal property and depreciating it over a shorter period of time, property owners can potentially lower their tax liability and increase their cash flow.
Cost segregation studies are typically conducted by specialized professionals, such as engineers or appraisers, who review the property and identify which components qualify as personal property. The results of the study are used to determine the appropriate depreciation schedule for the property and to allocate the costs of the property between the personal property and real property components.
Cost segregation can be a complex process and may have tax implications, so it is important for property owners to consult with a qualified tax professional before implementing a cost segregation strategy.
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