PAUL H. GRAHAM
← All GuidesWhat is a cost segregation study, and how does it accelerate deductions?
A cost segregation study breaks a property down into its individual components, allowing many of them to be depreciated over five, seven, or fifteen years instead of the standard thirty-nine, which can move a large deduction into the present.
Commercial real estate is normally depreciated on a long, straight timeline. A cost segregation study identifies which parts of the property, things like specialized lighting, certain flooring, or parking lot improvements, qualify for a much shorter depreciation schedule under current tax law.
The result can be a substantial deduction concentrated in the early years of ownership rather than spread thin over decades, which matters most in a year when you need the deduction to offset a specific gain or income spike.
This isn't a strategy for every property. It generally makes the most sense for larger commercial or investment properties, and it requires a qualified engineering-based study to hold up if it's ever reviewed, not a rough estimate.
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