GLOBAL Commercial Solutions
Cost Segregation Overview
What Is It?
How Does It Work?
What’s Your Benefit?
What is Cost Segregation?
Cost Segregation Is:
The IRS approved method for accelerating building
depreciation for Commercial and Residential Rental
properties. It is a detailed process which includes
identifying the building components that should be
properly classified as tangible personal property or
land improvements, rather than real property that is
depreciated over 39 years (or 27.5 for Residential
The US Treasury Department States:
“Cost Segregation is a lucrative tax strategy that
should be used in almost every major
purchase of Commercial Real Estate.”
Wall Street Journal – June‚2003
Cost Segregation Defined:
• A cost segregation study is an in-depth
analysis of the cost incurred to build, acquire
or renovate a real estate holding.
• The primary goal is to identify all
construction related costs that qualify for
accelerated income tax depreciation.
• A true engineering based cost segregation
study will identify and assign costs to all
building components including those in the
39 year depreciation category.
Why Use Cost Segregation?
• Taxes are one of the largest expenses for commercial
• Significant federal income tax benefits can be derived
from utilizing shorter recovery periods.
• Engineering-based cost segregation studies allow
commercial real estate owners to take what would
otherwise be classified as 1250 property for
depreciation purposes and reclassify it as more
rapidly depreciating 1245 property.
• This reclassification results in substantial cash flow
benefits in both current and future years through
substantially shorter depreciable tax lives and
accelerated depreciation methods.
• Traditionally, a building’s actual cost is divided
between land and building.
– 20% to Land (which is Non
– 80% to Building
• The 80% allocated to the building is then
typically depreciated using 39 year straight
The IRS Uses Three Primary Asset Classes:
• Personal Property (1245) – Eligible for 5 or 7 year
depreciation using double declining balance method
(200%DB). Includes items such as carpeting, certain
fixtures, equipment hookups, computer cabling and
• Land Improvements - Eligible for 15 year depreciation
using 150% declining balance. Includes items such as
sidewalks, fences, site utilities, landscaping and a
portion of excavation.
• Real Property (1250) - Structural components that
relate to overall structure of a building. Includes parts of
a building such as walls, ceilings, HVAC, roofs, floors and
Typically, only 3% of a buildings
cost is classified to reap the
greatest tax benefit.
Assets such as furniture, fixtures, and equipment
have properly been classified and claimed as
The remainder of the building is assigned a
depreciable life of 39 years.
(27.5 Years for residential rental property)
Cost Segregation Breakdown
5 Years Personal Property
Cost Seg 200%DB
7 Years Balance Method
39 years* Segregate
15 years 150% DB
S1250 Real Property
39 years* Straight Line
* 39 Years for Commercial Property and/or
27.5 Years for Residential Rental Property
Types of Components We Segregate
and Reclassify In Our Studies:
Communication Systems Conduit / Wiring to Special
Computer Data / Power Systems
Data Outlets Demountable Power
Electrical Outlets Systems
Distribution Wiring Specialty Gas /
Distribution Panels Compressed Air Systems
High Voltage Switchgear Millwork
Emergency Power Floor Coverings
Supply / Exhaust Systems Window Treatments
Removable HVAC Wall Coverings
Systems Demountable Walls
Specialized Fire Decorative Lighting
Specialized Air Filtration Sidewalk & Curbing
Humidity / Temp. Control Parking Lots & Curbing
Security Access & - Site Utilities
Monitoring Systems Sewer & Drainage
Audio / Visual Systems Landscaping
Communications Site Lighting
“Our engineers look beyond the obvious
items and evaluate every single key
component associated with a property.”
Any for-profit entity that:
• Owns a commercial or residential rental
property with a basis of $1,000,000 or
• Made leasehold improvements totaling
$500,000 or higher.
• Pays Federal Income Tax
Properties That Qualify
• Existing property acquired after 1986.
• New Construction or Future
• Existing buildings undergoing
renovations or expansion.
• Leasehold Improvements, both past
• Commercial Property about to be
We Provide Free Property Evaluations
• We provide a free Cost-Benefit Analysis for
each and every property.
• In the analysis we will provide our flat fee
to complete the study along with a
conservative estimate of benefits.
• This provides the owner the ability to make
an educated decision whether or not to go
forward with the study based upon the
anticipated return on investment.
Our Studies Are Different
• Our studies are conducted using a Unique
Detailed Engineering Approach. Our
Engineers visit the site and assign both a
depreciable life and a project cost to every
asset in a property. All short life items, as
well as all 39 year assets are accounted for.
Our study allows the property owner to
realize the greatest tax benefit from a front
loaded depreciation schedule while keeping
within all guidelines required by the IRS.
Retirement of Assets
Most providers of cost segregation do not provide
the detail necessary to retire long life s1250 – “Real
Property”. This often results in a property having
“Ghost” assets on the depreciation schedule.
Our studies allow the property owner to write off
long life assets in the years following the study.
– For example: If a roof needs to be replaced ten years
after the property is placed in service, the owner can
write off the remaining depreciable balance of that
roof all in one year.
This can amount to hundreds of thousands of dollars
in tax benefits.
We Will Support Our Findings
Our comprehensive engineering studies
maximize the benefit for our clients and
contain all of the supporting documentation
necessary to support our findings. Our final
reports stand on their own.
In the event of an IRS Audit and/or if any
questions or raised, we will defend our
findings at no additional charge.
Who would you rather pay?
Why provide the Federal Government with an
Interest Free Loan for the remaining 39 years
of your buildings’ depreciable life?
Contact Us Today
for your Free Cost-Benefit Analysis!