Cost Segregation Blog Posts

You’ve decided to cash in on accelerated depreciation with cost segregation, but what are your next steps once the study is complete? How you claim this depreciation varies based on whether the study was completed the same year you purchased the property or if you had a look-back study performed later. 

If you own a rental property (or several), there are several write-offs that you can deduct to lower your tax bill. This includes everything from mortgage interest and homeowner’s insurance premiums to the money you pay toward utilities, repairs, and employee wages.

Rental property depreciation allows property owners to write off the costs of purchasing and improving rental property on their income tax returns. Typically, a rental property depreciates at a rate of about 3.6% per year for 27.5 years. Depreciation begins after the property is available to rent.

If you’re a real estate investor or plan to invest in the future, it’s important to know the basics of residential rental properties, starting with the various classifications. In this post, we’ll break down how to classify rental property, from property types and classifications by property age and location to classifications used for writing off accelerated depreciation. 

The Internal Revenue Service allows property owners to depreciate the value of an investment rental property over 27.5 years using the Modified Accelerated Cost Recovery System (MACRS). This applies to all properties put into service on or after January 1, 1987.

While it is generally recommended to do a cost segregation study in the same year a property is purchased, built, or remodeled, this doesn’t always occur. Property owners that do not do a cost segregation study in the same year that property was put into service can do a cost segregation look-back study.

The best time to do a cost segregation study is the year the property is put into service. This is the same year that you purchase, construct, or remodel the property. However, if you didn’t order a study in the first year, you haven’t missed out. You can have a cost segregation study done at any time with a look-back study.

For property owners, cost segregation can help save thousands of dollars through accelerated depreciation. The required cost segregation study to realize these savings can be expensive, so can you bypass this expense with DIY cost segregation? 

An approach (or methodology) of cost segregation is the method used to allocate total project costs to property assets. These approaches rely on construction and cost documentation, estimates, sampling, or a combination of these things to accurately perform a cost segregation study.

A cost segregation company specializes in assessing property components for accelerated depreciation, which minimizes tax liabilities for real estate owners. Some companies may also offer additional tax credit services to help businesses save even more on their income tax returns. In this post, we’ve selected the best cost segregation companies to help you accelerate depreciation on your commercial or investment property.