PRX

Instead of depreciating an entire building over 27.5 or 39 years, a cost segregation study can identify qualifying components that may be depreciated over shorter periods, such as 5, 7, or 15 years.

By accelerating depreciation, property owners may be able to reduce taxable income and improve cash flow—particularly when combined with applicable bonus depreciation rules.

Cost segregation isn't limited to newly purchased buildings. Owners of properties acquired or constructed in prior years may be able to perform a study and claim the resulting depreciation adjustments through appropriate tax procedures.

Components such as electrical systems, plumbing, flooring, specialty lighting, cabinetry, landscaping, parking improvements, and certain building-related equipment may receive shorter depreciation lives when they meet the applicable tax requirements.

It can potentially benefit apartment buildings, office buildings, retail properties, restaurants, warehouses, medical facilities, and certain residential rental properties. The potential benefit generally becomes more significant as the property's depreciable basis increases.

The important distinction is that a cost segregation study doesn't create a tax credit. It accelerates depreciation, which can reduce taxable income and therefore reduce current-year tax liability.For 2026, this is particularly significant because the IRS says qualifying property acquired and placed in service after January 19, 2025, can generally receive 100% bonus depreciation.Rough exampleTake a $10 million commercial property:Purchase price: $10,000,000 Land: $2,000,000 Depreciable basis: $8,000,000 Cost segregation identifies shorter-life property: $2,600,000 If the $2.6M qualifies for 100% bonus depreciation, the taxpayer could potentially accelerate $2.6 million of depreciation into the first year rather than depreciating those components over the longer building recovery period.