Cost segregation study is a tax strategy approved by the IRS in 1997 which allows companies and individuals, who have purchased, constructed, expanded, or remodeled any type of commercial real estate, to reclassify specific real property assets.
Usually receiving a depreciation life of 39 years (commercial real property) or 27.5 years (commercial residential property) this method results in “tangible personal property” being treated as 5-year property or land improvements being treated as 15-year property for purposes of depreciation. Portions of the electrical, plumbing, mechanical systems, and site improvements of a building along with hundreds of other components can be allocated into shorter lives translating into immediate cash flow!
Cost Segregation is a lucrative tax strategy that should be used In almost every major purchase of commercial real estate.
—U.S. Treasury Department
Using this mode of accounting effectively increases taxpayer’s depreciation expense in today’s dollars. By recovering up to 40% of the building cost over the first 5 years as opposed to depreciating it over 39 years, translates into significant tax savings and taps into the concept of the “time value of money”. In other words this substantially increases taxpayers present value of available dollars.
Cost segregation has been an accepted tax strategy since a landmark U.S. Tax Court case in 1997 (Hospital Corporation of America vs. IRS), which affirmed the separation of personal property from real property for accelerated depreciation purposes. Since then, the IRS has issued detailed guidelines, and cost segregation has become a widely accepted method to improve cash flow through tax deferral.
Generally, any commercial or income-producing residential property owner who has constructed, purchased, expanded, or remodeled a property after 1986 may qualify for a cost segregation study. This includes properties like office buildings, retail spaces, warehouses, apartment complexes, and more. The greater the building cost, the more beneficial cost segregation becomes in terms of accelerated depreciation and tax savings.
| Property Type | Reclassification | Property Type | Reclassification |
|---|---|---|---|
| Restaurants | 20–45% | Apartment Buildings | 20–45% |
| Hotels | 30–50% | Fitness Centers | 22–45% |
| Shopping Malls | 22–40% | Banks | 30–47% |
| Medical/Dental | 22–35% | Manufacturing | 30–45% |
| Warehouses | 22–40% | TV/Radio/Cell Firms | 22–40% |
| Airplane Hangers | 18–35% | Leaseholds | 18–40% |
| CC & Courses | 28–60% | Research Facilities | 22–45% |
| Retail Facilities | 18–35% | Assisted Living/Retirement | 22–45% |
| Theme Park | 16–22% | Resorts | 25–45% |
| Office Buildings | 20–35% | Wineries | 18–25% |
| Grocery Stores | 20–45% | Mixed Use Properties | 18–30% |
We will provide a no-cost, upfront feasibility report to determine the cash flow and net present value (NPV) benefits.
We begin with a free, no-obligation consultation to assess whether a cost segregation study makes financial sense for your property. This includes a detailed feasibility report that estimates cash flow improvements and net present value (NPV) benefits — ensuring you only move forward if the savings justify it.
Experience and expertise matter. Our team includes qualified engineers and tax professionals who follow IRS guidelines to deliver accurate, audit-ready studies. Hiring the right team ensures you maximize tax savings while minimizing audit risks — a poorly done study could cost you far more than it saves.
Cost Recovery USA, LLC was established by Bobby Dozier, who has a wealth of sales/marketing experience working for well-known firms such as Frito-Lay and Allied Van Lines mainly in Tulsa, OK and Tokyo, Japan.
