DIY Cost Segregation
One of the largest costs for a cost segregation study is the on-site visit. If you forgo this step, you could possibly save 70% or more. While we recommend that you have an analyst come out to your commercial site, we understand that it is not always financially feasible. Instead, we will work with you to collaboratively put together your cost segregation study. You and your team provide us with evidence, like video, photos, and documents. In turn, we will use this information and our unique software to build your cost segregation report, with the goal of getting you the best savings possible.
This teamwork will result in a detailed cost segregation report. This report can be used by you or your CPA to help reduce your federal income tax liability. You may even be able to build upon this with multi-year accelerated depreciation or even bonus depreciation. These additions will depend on the date of filing and federal laws.
The One Big Beautiful Bill and Reinstatement of Bonus Depreciation While the Tax Cuts and Jobs Act of 2017 was originally scheduled to sunset, starting December 31, 2022, On July 4, 2025, The One Big Beautiful Bill was signed into law permanently reinstating 100% bonus depreciation. Qualifying assets put into service after January 19, 2025 can now be written off immediately, which keeps cost segregation a valuable strategy for maximizing deductions.
Updated Bonus Depreciation Timeline- Sept. 28, 2017 – Dec. 31, 2022 100% bonus depreciation available under the Tax Cuts and Jobs Act (TCJA).
- 2023 80% bonus depreciation (first step in the scheduled phase-down).
- 2024 60% bonus depreciation.
- Jan. 1 – Jan. 19, 2025 40% bonus depreciation (final phase of the TCJA phase-down).
- Jan. 20, 2025 and onward 100% bonus depreciation permanently restored
What to Know About Do-It-Yourself Cost Segregation
The IRS has strict rules on how cost segregation can be used. The foremost one is the “proper recovery period.” This means that any item you wish to depreciate must be in the correct lifetime category to be counted. These lifetimes depend on the assets in question, and are typically broken down into five, seven, 15, 27.5, or 39-year categories. The average commercial property may have over 100 components that fit into the depreciable short-life category, and identifying these components is the most difficult part of cost segregation.
Cost segregation, in the simplest terms, is the gathering of short-life assets, then using the ensuing depreciation to lower federal income taxes. This estimate must be as accurate as possible, as IRS standards demand strict accounting. It is important to never overstate the assets involved, as that could easily lead to an audit or worse.
The IRS Position
The IRS views cost segregation as the best and most accurate tool to measure accelerated depreciation. While it can certainly be a boon for taxpayers, they or their tax preparers must follow every rule to the letter. To directly quote the IRS “to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset…”
In other words, to maximize your cost segregation, you must use the correct methods, property components, and recovery periods.