Full Definition
Cost segregation is an engineering-based study that identifies components of a building that can be reclassified from 39-year (or 27.5-year) straight-line depreciation into accelerated 5-year and 15-year MACRS schedules. This can generate substantial first-year tax savings — often 20-40% of building value can be reclassified.
Related Terms
Depreciation
Tax deduction allowing investors to write off the cost of an income-producing building over its useful life — 39 years for commercial, 27.5 for residential.
Bonus Depreciation
IRS provision allowing investors to deduct a percentage of qualifying property costs in the first year. Phasing out from 100% (2022) to 0% (2027).