Discover 101 Amazing Real Estate Tips and Secrets
Appraisers lower costs for federal tax savings on small property
Tax savings through cost segregation is no longer out of reach for investors in small and
medium size properties. With appraiser expertise, fees for analysis are often one-third to one-
half lower than those charged by traditional preparers.
Several years ago a definitive court case ruled that tangible personal property included in an
acquisition or in overall costs should be depreciated as personal property for asset recovery,
using the old Investment Tax Credit principles to classify personal property.
This meant that owners of improved properties could distinguish between real property and
personal property to depreciate component costs over varying useful lives. Basically, instead
of depreciating an entire commercial property over 39 years, or residential roperty (single-
family rentals or multifamily) over 27.5 years, certain components are correctly identified as
depreciating in much less time. For about 135 items, useful life periods can be 5, 7 or 15
years. This is known as cost segregation.
The result of increasing depreciation is lower taxable income (which would have been taxed at
35%) and more income taxed at the capital gains rate (15%) when the property is sold.
Furthermore, it works for any type of improved property.
Until recently, primarily large accounting firms or engineering firms implemented cost
segregation studies, addressing large and newly built properties and sometimes outsourcing
Prices for those analytical reports, usually in the $10,000 to $40,000 range, were out of reach
for owners of small properties, especially those holding less-than-new assets. Unfortunately,
those owners representing the largest segment of real estate investors in the country were
mostly overlooked by previous providers of cost segregation services.
Now a revolutionary paradigm shift is opening the door to very significant savings for owners of