What is Cost Segregation Services and How Does It Work?

The Cost Segregation Services team helps you to speed up depreciation during the first few years of building ownership, allowing you to free up money at a time when investing in your company is vital. One of the most important possibilities that are accessible to firms is the cost segregation services because those commercial properties owners, owners of multi-family housing, or tenants improvements can decrease tax obligation while increasing short-term cash flow at the same time. 

What To Know About Cost Segregation Study?

In the sense that it front-loads the depreciation expenditure deduction that property would normally between 27.5 years to 39 years, then you may regard the Cost Segregation Study can be deemed as interest-free borrowing. 

Cost Segregation studies help businesses generate additional capital by speeding the depreciation of personal property (under the Internal Revenue Code) and Qualified Improvement Property (QIP), as well as finding different expensing possibilities related to commercial real estate. Instead of 27.5 or 39 years for the construction of the building (§1250), the expedited time period is generally 5, 7, and 15 years.

What Can Cost Segregation Do For You?

Because Cost Segregation is a highly technical area of study, we think that only highly qualified professionals should carry out our research investigations. Cost Segregation services have been managed by the bulk of the cost segregation team for between 10 and 20 years. Architects, licensed engineers, CPAs, MBAs, and the LEED-certified experts are included in a cost segregation services team among others. Each cost segregation specialist is highly skilled at working with customers, obtaining the appropriate data, and evaluating each building to guarantee that we find the greatest advantage that each taxpayer is eligible to get. 

Each cost segregation service is comprised of the following:

  • Pre-qualification and Submission of a Proposal 

Every Source Advisors research begins with a thorough pre-qualification procedure, during which the scope of work is established and an assessment of benefits is created, among other things. Additionally, a flat price quotation is provided in conjunction with the projection of benefits. 

  • Inquire about and collect information 

Once the proposal has been signed, our staff will begin gathering and analyzing the information you have given, such as construction drawings, invoices, modification orders, depreciation schedules, and other relevant documents and information. 

  • Visit the site and do research 

The team will identify any property that needs to be explicitly categorized based on the invoices we receive. If, as is likely, the invoice data is insufficient for the whole study, we will supplement the invoices with comprehensive estimates generated from the construction plans and a site visit to the location in question. In a report that contains our methodology, pertinent case law, definitions, a description of the property, photographs, and comprehensive schedules of our calculations, the findings will be provided to the client. 

  • Review

Each study is evaluated at least three times to verify that it is accurate and of high quality. 

  • Finish the Report as timely as possible

A cost segregation services team will initially issue a draft report after which they engage in talks with both the taxpayer as well as their CPA in order to validate their assumptions and results. The final report is provided once all questions are answered and any necessary modifications have been made to the report. 

  • Assistance with Audits 

By ensuring that you have a highly experienced management staff they will surely assist with audit assistance via appeals in the event that a study is subjected to an internal audit.

When is the Best Time To Conduct A Cost Segregation Study

In order to benefit from Cost Segregation services, it is best to have them performed during the year in which you are acquiring, remodeling, or building a commercial property. If you did not conduct a cost segregation study by the time the building was put up in service, your cost segregation services team can still conduct a lookback study, and this will help in correcting your deprecation schedule in the future, and you will be able to create a catch up in terms of your missed depreciation based on Section 481(a) adjustment. This is even possible even if you were not able to do this during construction. 

  • Buildings or improvements that are eligible for tax breaks 
  • However, most studies are restricted to the previous 5-7 years, despite the fact that they have been in service since 1987. 
  • The current depreciation period is 27.5 or 39 years. 
  • If your company has more than $500,000 in capitalized costs, you should start thinking about Cost Segregation. 
  • Have been bought, erected, extended, or modified in some manner. 
  • The property owner should be a legal business that also pays taxes. 

Apartment blocks, car dealers, banks, casinos, distribution facilities, grocery stores, medical facilities, hotel chains, production facilities, care homes, office buildings, restaurants, shopping malls, sports stadiums, storage facilities, and other specialized property types are examples of ideal building types. A Cost Segregation analysis is often most beneficial for more complicated buildings, which are typically more expensive to construct. 

Cost Segregation Services Have a Number of Advantages

The advantages of Cost Segregation services are generally quantified in terms of the following factors: 

  • A cost segregation analysis has provided the most significant advantage, as has the increased cash flow created in previous years. 
  • The net present value (NPV) of getting depreciation expenditure deductions sooner rather than apportioned over the lifespan of the property is calculated as the difference between the two numbers. 

Basic Information Needed To Provide an Estimate for Cost Segregation

The greater the amount of specific information you can offer, the better. Providing more information ensures a more accurate quote, and we may ask for extra information to ensure that we fully grasp your specific project and requirements. We must have at the very least:

  • Your project’s capitalized expenses.
  • Years in which it was capitalized
  • If one is available, a schedule of depreciation should be used. 
  • Your depreciation schedule’s description 
  • The number of stories and the square footage of the building site are also important considerations. 
  • The location of the property.


Sudarsan Chakraborty is a professional writer. He contributes to many high-quality blogs. He loves to write on various topics.