Cost Segregation: A Powerful Tool for Tax Savings

July 03, 2025 | by Atherton & Associates, LLP

Key Benefits of Cost Segregation Studies

July 3rd, 2025
From the Office of Roberto Galan-Uribe, Senior Tax Associate

Cost segregation provides significant advantages for businesses and property owners. A cost segregation study is a detailed analysis of a building’s components to identify which parts of the property can be classified as personal property for tax purposes. This allows for accelerated depreciation, leading to immediate tax savings. Here’s a breakdown of the key benefits:

Accelerated Depreciation

• This is the ability to accelerate depreciation deductions by identifying building components that qualify as personal property.
• By reclassifying certain elements—such as lighting, HVAC systems, and landscaping—property owners can significantly increase cash flow in the early years of a building’s life cycle.
• This results in reduced income taxes, especially during the property recovery period.

Energy Tax Deductions

• Property owners may qualify for tax breaks related to energy-efficient improvements.
• A detailed analysis can uncover prior and current expenditures eligible for these deductions, further reducing tax liability.

Compliance with Repair Regulations

• Cost segregation studies help identify costs that may have been previously capitalized but should have been deducted as repairs.
• Proper classification of expenses can prevent costly errors and ensure that tax benefits are maximized.

Partnership and Depreciation Adjustments

• Partnerships and their partners can also benefit, particularly when a study is conducted after the partnership has been formed for several years.
• This process can lead to significant depreciation adjustments, which can benefit new partners through Code Sec. 754 elections.
• The ability to adjust depreciation allocations in a partnership can yield substantial tax savings, especially for those joining after the property has been in use for some time.

Action Item

When conducted in compliance with IRS guidelines, cost segregation studies can offer substantial tax savings.  Please reach out to your tax advisor to discuss whether a cost segregation study could benefit your business.