Owning commercial property could mean you’re overlooking significant tax benefits. A cost segregation study is a powerful strategy that blends accounting and engineering to identify building costs that can be reclassified as tangible personal property. This allows businesses to accelerate depreciation deductions, reduce taxes, and improve cash flow.
Depreciation Timing Makes a Difference
Commercial buildings are typically depreciated over 39 years. However, many components—such as HVAC, plumbing, electrical systems, drywall, doors, fixtures, flooring, and cabinetry—have much shorter lifespans of 5, 7, or 15 years. By segregating these assets, you can claim larger deductions sooner, lowering your tax bill in the short term while maintaining the same overall depreciation.
Tax Law Enhancements Under OBBBA
Recent changes in the One Big Beautiful Bill Act (OBBBA) have expanded opportunities for savings:
- Bonus Depreciation: Restored 100% first-year bonus depreciation for eligible assets placed in service after January 19, 2025. While entire properties don’t qualify, segregated components with shorter recovery periods do.
- Section 179 Expensing: Starting in 2025, businesses can deduct up to $2.5 million of eligible assets immediately, with phaseouts beginning at $4 million. These limits adjust annually for inflation.
Additionally, OBBBA introduced a 100% deduction for qualified production property (QPP) for certain manufacturing and agricultural businesses, provided construction begins between January 19, 2025, and January 1, 2029, and is placed in service before 2031.
Professional Guidance Is Key
While cost segregation studies can deliver substantial tax savings, they are complex and closely monitored by the IRS. To ensure compliance and maximize benefits, it’s wise to work with experienced professionals who can properly allocate costs and withstand IRS scrutiny.
Conclusion: Ready to Save?
Cost segregation studies can unlock immediate tax advantages and strengthen cash flow. With the right guidance, your business can take full advantage of these opportunities and position itself for long-term financial success.