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Cost Segregation: Don't Overlook This Valuable Real Estate Tax Strategy

By Louis Guay
March 01, 2024

Whether acquiring, constructing, or remodeling a real estate property, cost segregation remains one of the most powerful strategies to simultaneously optimize cash flow and taxes. Real estate developers, buyers, and investors, especially those new to the real estate investment game who are now attracted by short-term rental properties, often miss the significant tax planning opportunity presented by cost segregation studies.

These studies, typically performed by multidisciplinary teams of engineers and tax specialists, can result in substantial tax deferrals, increased cash flows, and immediate capital boosts for investment in new projects.

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What Is Cost Segregation?

A cost segregation analysis is an engineering-based study of all the costs associated with the construction or acquisition of a commercial real estate property or a residential rental property. The analysis aims to allocate the costs of constructing or acquiring a real estate property to different asset classes in order to identify the costs eligible for accelerated depreciation.

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