Cost Segregation is a commonly used strategic tax planning tool that allows building owners who have constructed, purchased, expanded or remodeled real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

A Cost Segregation report for residential investment property dissects the purchase price of the property that would otherwise be depreciated over 27.5 years for income tax purposes.

• Accelerate Depreciation Deductions: The primary goal of Cost Segregation is to identify all property-related costs that can be depreciated faster (typically over 5, 7 and 15 years).
• Retirement and Partial Disposition Deductions: The secondary goal of Cost Segregation is to establish the depreciable tax value for each major building component that is likely to be replaced in the future. Examples include roof, windows, doors, bathroom fixtures, HVAC, etc. When a component is replaced, taxpayers need this information to claim a “retirement loss” or “partial disposition” deduction for its remaining depreciation.