A cost segregation study breaks a building's purchase price into its components and assigns each one the recovery period the tax code actually allows. Items that are personal property or land improvements come off the 27.5-year schedule and onto much shorter ones, which moves deductions forward without changing the total.
- It changes timing, not totals. Deductions arrive sooner, which is worth money, and the same basis is eventually recovered either way.
- Faster depreciation builds a larger recapture at sale. The two decisions belong in one conversation, not two.
- It costs a fee and it needs support. On a small building the study has to be worth more than it costs, which is a real arithmetic question.
- Rules on bonus depreciation and eligible components change. Confirm the current treatment with a CPA before assuming a result.
Tax mechanics change and individual situations differ. Treat this as orientation, not tax advice; the numbers on a specific transaction belong with a CPA or qualified intermediary.
Related terms
All termsDepreciation
Depreciation is the annual deduction the tax code allows for the wearing out of an income property's improvements.
OwnershipDepreciation Recapture
Depreciation recapture is the tax owed at sale on the depreciation an owner already deducted.
OwnershipCapEx (Capital Expenditure)
Capital expenditure is money spent on the building itself rather than on running it: a roof, a new electrical panel, windows, a repiping, a parking lot.
Terms arrive with the writing.
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