Why CPAs Recommend Cost Segregation to Reduce Property Owner’s Income Taxes

If you own commercial or multifamily real estate, and your accountant has not recommended cost segregation as a tax strategy, read on. This is an important topic to discuss with your tax adviser.

Savvy accountants know that when you buy or build real estate, you end up with a combination of real property, land improvements and personal property.

Here are several CPA-authored articles that illustrate why the CPA community is in favor of cost segregation studies.

Cost Segregation Applied

BY JAY A. SOLED AND CHARLES E. FALK http://www.journalofaccountancy.com/issues/2004/aug/costsegregationapplied.html#sthash.XBOOep3K.dpuf
A taxpayer can substantially increase cash flow by segregating property costs.

Cost segregation can provide real estate purchasers with tremendous tax benefits from accelerated depreciation deductions and easier write-offs when an asset becomes obsolete, broken or destroyed.

CPAs can recommend using the cost segregation technique when a taxpayer constructs a building or buys an existing one. It can be used even if a structure was acquired several years earlier.

Buyers of real estate should obtain an engineering report that segregates assets into four categories: personal property, land improvements, building components and land.

Advantages of cost segregation include the value of front-loaded depreciation deductions, write-offs of building components that need replacement and lower local realty-transfer taxes.

The Benefits of Cost Segregation Studies

By: Robin Word, CPA, real estate niche leader, Averett Warmus Durkee CPAs, Orlando, Florida

Careful analysis of the cost allocations of real estate projects, as well as certain improvements, can provide significant after-tax cash flows for real estate investors. Taxpayers should work with their real estate attorneys and CPA/cost segregation specialists to maximize their real estate investment returns by properly analyzing their cost allocations.

Cost-Segregation Studies and the Impact of the Tangible Property Regulations

By Kate Abdoo, J.D., LL.M., and Christian Wood, J.D., LL.M., Washington


Cost-segregation studies have for many years provided significant benefits to taxpayers by identifying assets that may be subject to accelerated (and bonus) depreciation. The use of studies is more important than ever because they can help ensure that taxpayers are complying with and benefiting as fully as possible from the final repair regulations. A cost-segregation study can assist with the use of consistent, reasonable methods to determine the basis of disposed assets and partial dispositions, as well as the treatment of removal costs (including the applicability of Sec. 280B in the case of demolitions)

Cost Segregation Studies Can Reduce Tax Burden

By Jim Sacher, CPA

As a general rule of thumb, if you have purchased commercial real estate for an amount over $750,000, you may be able to reduce your taxes by having a cost segregation study undertaken. Cost segregation is a well-established method of reclassifying building assets into shorter lived property to reduce the tax load of commercial real estate owners…When considering the value of money over time, you gain significant early tax savings by speeding up the depreciation deduction schedule. You get more deductions in the first 5, 7 and 15 years than if you didn’t order the study and reclassify the assets. Even if a building was placed in service in a prior year you can still benefit from a cost segregation study.

Get a Complimentary Estimate of Tax Benefit

If you own and invest in commercial real estate or apartments, and have not yet looked into cost segregation, take a closer look to see if you can use it to significantly improve your cash flow. It’s easy to get a complimentary estimate of tax benefit that you can discuss with your tax advisor. Call  (510) 537-9900 or email Jeff Glass (jbg0000@hotmail.com) for your no-obligation consultation and estimation of benefit.

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About the Author Jeff Glass

Jeff helps real estate owners increase their cash flow. He started his career as a Financial Analyst with the Irvine Company, and worked in various management/executive positions in the mortgage industry for many years. He's been a Cost Segregation consultant for several years and is considered one of the industry's top experts in TPRs. As Director of Business Development for Bedford Cost Segregation, Jeff helps his clients increase cash flow by accelerating their depreciation deductions, and by writing off assets that no longer need to be depreciated under recently changed tax rules. Jeff has a B.S. in Economics from Claremont McKenna College and an MBA with an emphasis in Finance from UC Berkeley.