Cost segregation
A tax study that breaks a property into components with shorter depreciation lives, accelerating deductions. Common on larger investment properties. Pays for itself only on bigger deals.
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Part 1 of 4
Why a seller cares
A cost segregation study speeds up depreciation on a larger rental by splitting it into parts with shorter lives. It matters at sale because every dollar accelerated is recaptured then, at up to 25%.
Part 2 of 4
A simple example
A study on your $600,000 apartment building moved $120,000 into five- and fifteen-year property. At sale, that depreciation is recaptured.
| The effect | When |
|---|---|
| Bigger deductions | In the early years of ownership |
| A lower adjusted basis | Every year after |
| More recapture | At the sale, unless it is exchanged |
Cost segregation is depreciation brought forward, and the sale is where it is settled.
Part 3 of 4
What people get wrong
That it creates deductions. It moves them earlier; the total over the life of the building is the same.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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