What is Cost Segregation?
Definition Cost segregation is an engineering-based study that breaks a building into components, reclassifying items like fixtures, flooring, and land improvements into shorter depreciation lives. This accelerates depreciation deductions into the early years of ownership, deferring tax and improving cash flow. It is most valuable for larger commercial or rental properties.
For real estate owners, a cost segregation study can front-load substantial deductions, though the accelerated benefit interacts with later depreciation recapture.