7 Key Factors to Consider When Evaluating a Property for Cost Seg

[Julio Gonzalez]

I am often asked how to determine if a cost segregation study should be performed on a specific property. Here are the top 7 factors to ask yourself when trying to decide.

1. Did you recently sell the property? If you haven’t filed the tax return for the year in which the sale was made, you could still complete a cost segregation study on the property.
2. Is the property your personal residence or an investment property? Only investment properties qualify for a cost segregation study.
3. Did you purchase the property within the past year? If so, the property could qualify for bonus depreciation which allows the taxpayers to deduct 100% of qualifying property costs. This is on top of the depreciation for improvements and new construction.
4. Are there any land improvements or personal property? If so, a cost segregation study would split these assets into their own asset classes to depreciate them over the determined useful life rather than depreciating them over 27.5 years or 39 years (for residential property and commercial property, respectively) with the property. This accelerates the depreciation, thus decreasing taxable income.
5. Have there been any tenant improvements? These improvements could qualify for bonus depreciation and could be segregated into asset classes to depreciate over their specific useful life.
6. What was the original cost of the property? Cost segregation studies are typically performed on properties with a purchase price of greater than $500,000.
7. How long do you plan on holding the property? Typically it is beneficial to perform a cost segregation study on properties that you plan to hold for more than a year, however greater than three years provides a greater benefit.

What other factors did you take into account when evaluating a property for cost segregation?