Cost Segregation Study

Definition

A cost segregation study is an engineering and tax analysis that breaks down the components of a commercial or residential rental property to identify assets that qualify for shorter depreciation periods (5, 7, or 15 years) rather than the standard 27.5 or 39 years. By reclassifying portions of a building's cost basis into personal property or land improvements, the study accelerates depreciation deductions and reduces taxable income in earlier years. These studies are typically performed by engineers working alongside CPAs and can generate significant first-year tax savings for real estate owners.