5 Components of Cost Segregation Study

Photo By: W. Britt Treece

If you're investing in commercial real estate, you may have heard of cost segregation studies. These studies allow property owners to accelerate the depreciation of their assets, resulting in significant tax savings. But what exactly is included in a cost segregation study?

In this post, we'll break down the five components of a cost segregation study for commercial due diligence services.

1. Building Structure

The first component of a cost segregation study is the building structure. This includes the components of the building that are considered part of its structural integrity, such as the foundation, walls, roof, and framing. Other structural components included in a cost segregation study are floors, windows and doors, and stairs and elevators.

2. Building Systems

The second component of a cost segregation study is building systems. This includes the building's mechanical, electrical, and plumbing systems, as well as any other systems that are necessary for the building to function properly. Examples of building systems included in a cost segregation study are HVAC systems, electrical systems, plumbing systems, fire protection systems, security systems, communication systems, and other specialized systems.

3. Land Improvements

The third component of a cost segregation study is land improvements. This component covers any improvements made to the land that the building is situated on, such as landscaping, parking lots, sidewalks, and fences. Other land improvements included in a cost segregation study are retaining walls, stormwater management systems, and outdoor amenities.

4. Personal Property

The fourth component of a cost segregation study is personal property. This refers to any property that is not considered a permanent part of the building, such as furniture, fixtures, and equipment. Examples of personal property included in a cost segregation study are furniture, fixtures, equipment, decorative items, and appliances.

5. Construction-Related Expenses

The fifth and final component of a cost segregation study is construction-related expenses. This component covers any expenses related to the construction of the building, such as permits, fees, and contractor costs. Other construction-related expenses included in a cost segregation study are costs associated with architects, engineers, and other consultants, construction materials and supplies, labor costs, equipment rental costs, and costs for cleaning and landscaping services.

Other related terms for Cost Segregation Study:

• Cost segregation analysis
• Asset segregation study
• Depreciation analysis
• Property classification study
• Engineering-based cost allocation study

Check out related blog post:

Why does IRS allow Cost Segregation Study?

Cost Segregation Study