Cost Segregation and Bonus Depreciation: A Winning Combination

Combining cost segregation with bonus depreciation is one of the most effective tax strategies for real estate owners and investors. This approach accelerates deductions and frees up capital for future investments.

What is Cost Segregation? Cost segregation identifies components of a property that can be depreciated over shorter periods, such as 5, 7, or 15 years. Examples include:

• Carpeting and flooring

• Electrical systems for specialized equipment

• Landscaping and site improvements
  

How Does Bonus Depreciation Enhance Cost Segregation? When combined with bonus depreciation, the identified short-life assets can be deducted immediately, maximizing tax savings.

A property owner purchases a $2 million commercial building. A cost segregation study determines that $600,000 of the building’s components qualify for shorter depreciation periods. With bonus depreciation, the owner deducts the full $600,000 in the first year, significantly reducing taxable income.

Key Considerations

• Bonus depreciation applies to both new and used properties acquired after September 27, 2017.

• Some states do not conform to federal bonus depreciation rules, requiring additional planning.
  

How Arc&Ledger Can Help Our cost segregation experts ensure you maximize your deductions while maintaining compliance. Contact us to schedule a consultation.