Real Estate · 5 min read

Cost Segregation for Real Estate Investors

Cost segregation is a tax planning strategy that may allow real estate investors to accelerate depreciation on certain property components. Instead of treating an entire building as one long-term asset, a cost segregation study separates components into different categories.

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Cost segregation may apply to items such as:

Flooring
Lighting
Cabinetry
Land improvements
Specialized electrical systems
Parking areas
Certain fixtures

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This strategy is commonly used for commercial real estate, multifamily properties, short-term rentals, and larger investment properties.

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A cost segregation study should generally be performed by qualified professionals and reviewed by a real estate CPA.

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The benefit may be larger deductions in earlier years, but investors should understand long-term tax consequences, including depreciation recapture.

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