A Case Study - "Finding" $400K Through Cost Segregation

A Cost Segregation study is a strategic tax planning tool widely used by real estate investors and property owners to accelerate depreciation deductions on their federal tax returns. The accelerated depreciation deductions can result in a significant amount of tax savings.

Typically, properties are depreciated over 27.5 or 39-years for federal tax purposes when acquired, constructed or renovated. However, there are assets included in the cost of the building that should not be depreciated over 27.5 or 39-year life. Cost Segregation studies fix this issue by properly reclassifying property into 5, 7 or 15-year lives. 

client saves over $400K annually with cost segregation

Our client constructed a distribution warehouse for $11 million dollars in 2024, with non-depreciable land being $2 million of the total. Without a cost segregation study, the property would be depreciated over 39 years with a yearly depreciation deduction of roughly $230k.

Align Tax Consulting completed a cost segregation study on the property to assist in accelerating depreciation deductions. Our team reclassified 19% of the $9 million depreciable basis into 5 and 15-year recovery periods instead of the normal 39-year life.

The owner was able to utilize bonus depreciation and depreciated 60% of the 5 and 15-year totals in the first year of the asset’s life. The study resulted in accelerating $1.3 million of accelerated depreciation deductions and roughly $420k in 2024 tax savings. Without the cost seg study, our client would have left over $200K on the table. 

Contact our team for a free, brief consultation and we can quickly determine if your company or your clients could benefit from a cost seg study.