Cost Segregation: Accelerating Tax Savings

• Fixtures, cabinetry, and lighting are often grouped together and can be depreciated over a much shorter time frame of 5–7 years. This includes items such as custom cabinetry, specialized lighting fixtures, and other integral elements that enhance the functionality and aesthetic appeal of the commercial space.

• Landscaping and parking lots, which are essential for the overall usability and attractiveness of the property, typically fall under a 15-year depreciation schedule. This category encompasses the costs associated with landscaping features, paving, and other outdoor improvements that contribute to the property’s value and appeal.

• The structural property itself, which includes the building's core components such as walls, roofs, and foundational elements, is depreciated over the standard 39 years. This classification reflects the long-term nature of these structural investments, which are essential for the integrity and longevity of the commercial building.

  
  

✅ The result of conducting a cost segregation study is the opportunity for accelerated deductions. This translates to lower taxable income, which can significantly enhance cash flow during the early years of property ownership. By taking advantage of these accelerated depreciation schedules, property owners can free up capital that can be reinvested into the business or used for other investment opportunities, allowing for greater financial flexibility and growth potential.

For business owners and investors, the implications of a cost segregation study are profound. It means that capital can be accessed sooner rather than later, providing the necessary funds to reinvest and expand operations more rapidly. However, it is crucial to keep in mind that a formal cost segregation study is typically required to substantiate the claims made regarding accelerated depreciation. Additionally, there is a possibility of IRS scrutiny, especially if the classifications made during the study are considered overly aggressive or not well-supported by the data.

Action: It is advisable for property owners to consult with their CPA or tax advisor to determine whether a cost segregation study is a feasible and beneficial option for their specific property. Engaging a professional can help navigate the complexities of tax regulations and ensure compliance while maximizing potential tax benefits.