What is a Cost Segregation Study & Why do it?

 A Cost Segregation Study is a detailed analysis that breaks down the costs of a commercial building into different components, such as lighting, plumbing, and landscaping. Instead of depreciating the entire building over a long period (like 27.5 or 39 years), this study allows you to reclassify certain parts of the building so they can be depreciated faster—over 5, 7, or 15 years. This accelerates tax deductions, reducing taxable income and increasing cash flow, which can lead to significant tax savings.

Bonus depreciation, also known as additional first-year depreciation, allows businesses to deduct a percentage of eligible asset costs in the first year the asset is placed in service under the general depreciation system (GDS). Any remaining basis must be depreciated using its respective method and convention. 

The Tax Cuts and Jobs Act in 2017 revised bonus depreciation rules and enabled businesses to deduct 100% of an eligible asset’s cost if it was placed in service after September 27, 2017, and before January 1, 2023. Beginning January 1, 2023, bonus depreciation rates have decreased by 20% each year, currently at 60% for 2024, and will continue to decline unless legislation is further amended. This phase-out of bonus depreciation has caused businesses to pursue additional tax-saving strategies, such as Section 179.