Cost Segregation

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How Cost Segregation Works

Typically, a building’s basis or cost, excluding land, is depreciated over 27.5- or 39- years, which is known as the straight-line method. This method is the default position of most tax professionals. However, there is an alternative called cost segregation, which takes the parts and pieces or components of the building and separates them. Each component is depreciated on its individual useful life instead of taking all the assets and depreciating it under the structure of the building. 

Property Eligible Under Cost Segregation

Cost segregation is based on a tax court action from 1997 between the Hospital Corporation of America (HCA) and the IRS. The HCA triumphed in the landmark case, and cost segregation could no longer be challenged.

Land improvements are also identified under cost segregation. Land improvements have a 15-year class life and include parking lots, curbing, landscaping, sidewalks, exterior signage, and more.

New construction is not the only circumstance when cost segregation can be performed. Routinely, cost segregation studies are performed on buildings that have been in service for ten years or more. Any buildings with a remaining depreciable basis are potential candidates.

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Let CSSI® provide you with an engineering-based cost segregation study to increase your cash flow significantly.