Morris Cost Seg Consultants
Cost Segregation Resources
Educational guidance for commercial property owners, CPAs, and professional advisors.
Understanding Cost Segregation
An overview of what cost segregation is, how it works, and why an engineering-based study is important for accuracy and IRS compliance.
Cost segregation is an IRS-recognized tax strategy that allows commercial property owners to accelerate depreciation by identifying building components eligible for shorter recovery periods. By properly classifying these assets, owners may improve cash flow and reduce current taxable income.
An engineering-based cost segregation study ensures accuracy, compliance, and long-term defensibility. Each property is unique, and detailed documentation is essential to support accelerated depreciation benefits in accordance with IRS guidelines.
When Does Cost Segregation Make Sense?
Key factors to consider when evaluating whether a cost segregation study may be beneficial, including property type, timing, and coordination with your CPA.
Cost segregation may be beneficial depending on factors such as property type, construction costs, and the timing of acquisition or placement in service. Properties with higher cost bases or complex building systems often present greater opportunities for accelerated depreciation.
Determining whether a study makes sense should be done in coordination with a CPA or tax advisor to ensure alignment with the owner’s overall tax strategy. A preliminary review can help evaluate whether the potential benefits justify moving forward with a full engineering-based study.
Bonus Depreciation and Cost Segregation
How bonus depreciation may apply to qualifying assets when supported by proper classification, documentation, and an engineering-based cost segregation study.
Bonus depreciation allows certain qualifying assets to be expensed more quickly in the year they are placed in service. When combined with a properly prepared cost segregation study, bonus depreciation may further accelerate depreciation deductions for eligible building components.
An engineering-based cost segregation study is essential to accurately identify and document assets that qualify for accelerated depreciation treatment. Because bonus depreciation rules may change over time, coordination with a CPA is recommended to ensure proper application and compliance.
Engineering-Based Cost Segregation Studies
Why an engineering-based approach and detailed documentation are critical for IRS compliance, accuracy, and long-term defensibility.
Read more → Engineering-Based Cost Segregation Studies
The methodology used to perform a cost segregation study plays a critical role in the accuracy and defensibility of the results. An engineering-based approach applies established engineering principles to analyze and classify building components based on their specific characteristics.
This approach relies on construction records, site inspections, and detailed documentation to support depreciation classifications in accordance with IRS standards. Engineering-based studies provide confidence that depreciation benefits are properly supported and designed to withstand IRS review.
Frequently Asked Questions
Understanding Cost Segregation
An overview of what cost segregation is, how it works, and why an engineering-based study is important for accuracy and IRS compliance.
Cost segregation is an IRS-recognized tax strategy that allows commercial property owners to accelerate depreciation by identifying building components eligible for shorter recovery periods. By properly classifying these assets, owners may improve cash flow and reduce current taxable income.
An engineering-based cost segregation study ensures accuracy, compliance, and long-term defensibility. Each property is unique, and detailed documentation is essential to support accelerated depreciation benefits in accordance with IRS guidelines.
When should a cost segregation study be performed?
A study may be performed when a property is newly constructed, purchased, renovated, or expanded. In addition, properties placed in service in prior years may still qualify through a look-back analysis, depending on the circumstances.
Does cost segregation increase the risk of an IRS audit?
When performed using proper methodology and documentation, cost segregation does not inherently increase audit risk. Engineering-based studies that follow IRS guidelines are designed to be audit-ready and defensible if reviewed.
What types of properties may benefit from cost segregation?
Cost segregation is commonly applied to commercial and income-producing properties, including office buildings, retail centers, industrial facilities, multifamily properties, and owner-occupied commercial real estate. Each property must be evaluated individually.
How long does a cost segregation study take?
The timeline varies based on property size, complexity, and availability of documentation. Most studies are completed within several weeks once all necessary information is received.
Should cost segregation be coordinated with my CPA?
Yes. Coordination with your CPA or tax advisor is important to ensure that study results are properly implemented and aligned with your overall tax strategy.
Is a preliminary review available before committing to a full study?
A preliminary review can often help determine whether a full cost segregation study is appropriate by estimating potential benefits before moving forward.
Get In Touch
If you would like to discuss whether a cost segregation study is appropriate for your property, we welcome the opportunity to speak with you.
Contact Morris Cost Seg Consultants to request a consultation or preliminary review.
Serving Coast-to-Coast Businesses
Wilmington, NC
910-988-2019
jim@morriscostseg.com
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