Cost Segregation Overview
Cost segregation is a valuable tax strategy utilized by owners of commercial and residential rental property to accelerate depreciation deductions, defer taxes, and improve cash flow. A quality study provides the appropriate documentation needed to support the correct classification of depreciable assets.
From a tax perspective, cost segregation should be considered routine for all property owners who own or manage real estate. Not only will a study support accelerated depreciation by reclassifying eligible assets into shorter lives, but it can also provide valuable data to support important tax-centric initiatives during the holding period of the property.
During a study, the property is thoroughly examined, and its components are categorized into different asset classes:
Real Property
(Building Structure)
Personal Property
(Furniture, Fixtures, and Equipment)
Land Improvements
(Landscaping, Parking Lots, Sidewalks, etc.)
It's important to note that a study should be performed by qualified professionals, as it requires a deep understanding of tax law, construction techniques, and engineering principles.
How Does It Work?
When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure. A cost segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27½ years (for multi-family residential) or 39 years (for commercial).
We help real estate owners identify faster-depreciating assets and segregate them into their IRS-approved categories.
So you pay less tax and get better value for your money today.
Under the One Big Beautiful Bill Act, signed into law on July 4, 2025, 100% bonus depreciation became permanent for assets placed into service after January 19, 2025. For previous years, the bonus depreciation rates range from 40% to 100%. A cost segregation study produced by CDK Cost Segregation will separate costs that qualify for bonus depreciation and classify the assets in the appropriate periods.
