When a commercial property is purchased, it includes both the building and its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that have a shorter life than the building itself. A Cost Segregation study dissects those elements and writes them off more quickly than the usual 27 ½ or 39 years.
Much of this work is in the form of "look-back" studies, where we go back to the date of acquisition by the current owner and re-create the depreciation schedule. This allows the client to "catch-up" on the depreciation they could have taken had they done a study right after purchase.
This approach is certified by the American Society of Cost Segregation Professionals and follows IRS regulations. It requires breaking the property down by using blueprints and as-built drawings, valuing building systems, sub systems and components, all the way down to unit cost levels.
A cost segregation makes the most sense when the cost of the building (plus any improvements), minus the land is about $750,000 or more or when there is $300,000+ in tenant improvements.