Are you a building owner?
If yes, then you should know about cost segregation.  Cost segregation is an Internal Revenue Services-approved procedure that is used to accelerate depreciation deductions on commercial real estate assets. The analysis, which is known as a cost segregation study, involves a thorough review of relevant information such as cost data, building plans, as well as an on-site inspection of the property by a qualified professional, preferably an engineer. 

Cost Segregation is not a loophole - its legal and its logical and it saves the property owner many $$$ which is probably why the IRS does not talk about it much.

Real Estate Wealth Connection meet up - Norman Rosner Presentation - April 29, 2009

Click for an audio presentation on the history/benefits and operation of cost segregation  (suggested listening)

Journal of accountancy article - Cost Segregation Applied - By:  Jay A. Soled and Charles E. Falk (must read)


Guidelines for cost segregation eligibility

Performing a cost segregation analysis can help owners save a significant amount through Qualified Leasehold Improvements. Jacob D. Hopper – Bedford Capital Development


http://www.northeastrebusiness.com/articles/DEC07/feature2.html  (excerpted)

Cost segregation is an Internal Revenue Services-approved procedure that is used to accelerate depreciation deductions on commercial real estate assets. The analysis, which is known as a cost segregation study, involves a thorough review of relevant information such as cost data, building plans, as well as an on-site inspection of the property by a qualified professional, preferably an engineer.

Following the site visit, the engineer(s) will produce a detailed breakdown of costs and properly allocate them to the appropriate recovery periods (5, 7, 10, 15, 20, 27.5 or 39.5 years), depending on the facts and circumstances of the project. Soft costs such as architectural and engineering fees, and the builder’s overhead and profit are then allocated proportionately according to findings of the study.

A quality engineering-based study will address all depreciable costs, not just those that qualify for a shorter recovery period.

The driving force behind cost segregation is the time value of money. A cost segregation study allows the taxpayer to accelerate depreciation deductions, which in turn reduces taxable income during the early years of ownership years 1 to 15 - when a study is done later that missed accelerated depreciation can be instantly captured.

Deferring taxes improves cash flow, which allows the taxpayer to utilize its funds to pursue additional opportunities. Those that are not depreciating assets over the shortest allowable recovery periods are simply leaving money on the table; for all intents and purposes providing the IRS with an interest-free loan.

Additional Articles to Read

Cost Segregation the Secret is Out

Cost Segregation - Like Kind Exchanges

Apartment Finance Today

Real Estate Weekly Cost Segregation Article


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