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in Tax Savings
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and learn how cost seg delivers tax savings
up to 10% of your purchase price in year 1
Summary: Property owners can recover up to 10% of their purchase price as cash tax savings in the first year after a cost seg study. Successful investors use this increased cash flow to buy more properties or pay down debt
Cost Seg Example
Purchase price for a short term rental | $1,000,000 |
% allocated to land (not depreciable) | 20% |
| Depreciable basis | $800,000 |
% reclassified into shorter life categories with a cost seg | ~ 25% |
Assets eligible for 100% bonus depreciation with a cost seg | ~ $200,000 |
| Year 1 tax savings at a 37% federal income tax rate with a cost seg | ~ $74,000 |
Higher depreciation → lower taxable income → improved cash flow
Note: This estimate is provided for informational purposes; actual results will depend on the specific features of your property (e.g., quality of the property, condition, year of purchase, renovation work, location, etc)
Depreciation
The IRS allows taxpayers to deduct depreciation for the "exhaustion, wear and tear, and obsolescence" of property, lowering their taxable income and taxes owed.
Most taxpayers depreciate their property over 27.5 years for residential properties (excluding short-term rentals) or 39 years for commercial properties, and using the straight-line method. This assumes all components of the property have the same useful life — but this is rarely true.
Cost Segregation
Different property components have different useful lives. For example, carpet, cabinetry, electrical, and land improvements like sidewalk and fencing typically require more frequent repairs or replacement, and so have shorter useful lives (5, 7, or 15 years). Structural building components, like walls and roofs, have longer useful lives.
A cost seg study is an analysis that identifies and reclassifies components of a property into appropriate useful life buckets for tax purposes. Our engineering team builds a detailed, engineering-based "replacement cost estimate" for each component of your property. We can then allocate some of the property value into these shorter useful-life buckets.
The result of a cost seg study is accelerated depreciation to the property owner - a.k.a. higher depreciation deductions in the earlier years. If you have taxable income to offset, this can result in significant tax savings and increased cash flow. We usually see successful investors use this cash flow to reinvest in more properties, pay down debt, or make other investments.
Bonus Depreciation
Depending on when your property was placed in service, you may be able to claim up to 100% bonus depreciation. Bonus depreciation significantly accelerates the depreciation that can be deducted in year 1, materially increasing the tax savings from cost segregation.
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Our Experience
Nationwide Experience
We have completed cost segs in all 50 states over the last 20 years
Lifetime Audit Protection
We stand behind our work with comprehensive audit protection
No Studies Rejected
The IRS has accepted 100% of our studies because of our engineering-based methodology and high quality reports
FAQs
The IRS has an Audit Technique Guide, where it describes the best practices for a cost segregation report that will be accepted by the IRS during an audit. The IRS explicitly states that a cost segregation expert should conduct the study and create the report, and that significant construction and engineering experience is required (See page 35).
Most income-producing properties qualify including: short term rentals, apartments, condos, office buildings, retail centers, warehouses, manufacturing facilities, hotels, and medical facilities. Properties must be used for business or income-producing purposes, not be a personal residence.
Ideally in the same tax year as your acquisition, construction, or renovation — but look-back studies (studies done years later) are very common and can still deliver very attractive tax savings. With a look-back study you do a catch-up without amending prior returns.
Savings vary based on property type, value, and your tax situation. Typically, our clients see first-year tax savings up to 10% of their purchase price. Our clients also typically see first-year tax savings of 5x the cost of their study. Every situation varies, but applied correctly cost seg can be a really lucrative and efficient strategy.
We are happy to provide you a personalized estimate of your benefits and costs and based on your specific situation, or feel free to use our free estimate tool.
Our typical turnaround time is ~3 weeks, depending on the complexity and size of your property. We'll provide a detailed timeline before we get started. For urgent situations, we offer expedited processing for an additional fee.
We also offer Do-It-Yourself (DIY) options, powered by our sister brand Cost Seg EZ, for simpler properties where the study can be completed much faster.
You can learn more about our different offerings here.
It depends on your property and your desired level of service. We are proud to offer a several options so you can choose.
Do-It-Yourself (DIY) studies, powered by our sister brand Cost Seg EZ, can be generated instantly for $595 per property. This option is available for residential properties with a cost basis < $1 million and minimal post-acquisition improvements.
Engineer-Reviewed studies takes DIY and adds a detailed review by our experienced engineering team to ensure maximum benefits and accuracy for $895 per property. This option is available for residential properties with a cost basis < $1 million and post-acquisition improvements up to $100,000.
Fully Engineered studies are our core business. This is for larger residential properties and all commercial properties. The pricing depends on the size and scope of the project and starts at $2,250. Get a personalized proposal here.
You can learn more about our different offerings here.
Cost segregation studies do not increase your audit risk when done properly. Cost segregation is an IRS-approved strategy, and we've never had a study rejected by the IRS. Our studies follow the IRS guidelines and we lead the industry with engineering-based best practices. A poor quality or inaccurate study is what can increase the risk of an audit or cause issues during an audit.
Yes, we provide lifetime audit protection. If the IRS questions any aspect of our cost segregation study, we'll handle the defense at no additional cost to you for Fully Engineered studies. Our studies follow all current guidelines and we've never had a study rejected by the IRS.