The Hechtman Group Cost Segregation Study

Within the Internal Revenue Service’s exhaustive and elusive tax codes, many stipulations exist designed to allow taxpayers to save money as long as they fit the specific requirements. This is not big headline news, everyone knows about deducting expenses from their taxable income.

However, there is one commonly overlooked tool that could be saving you thousands of dollars: cost segregation of real properties. The following article breaks down the essence of cost segregation studies, helping regular taxpayers, real estate investors, better manage their finances.


What is a Cost Segregation Study?

A cost segregation study refers to a test or analysis performed on a property that examines each existing element within the property and divides them into different classifications. The result is a fast-tracked depreciation timeline for some of the components within the building.

 The objective of a cost segregation study is to generally categorize all costs within a property into the following groupings: personal property, land improvements, building structure, and the land itself. The personal property and land improvement groups enjoy accelerated depreciation timelines, and some can even be written off faster using bonus depreciation, which is 80% starting on January 1, 2023.


How Does it Work?

Once a property owner connects with a team of experienced individuals fit for conducting this type of analysis, the team gathers information about the property from construction plans, cost records, invoices, and other crucial documents.

Now that they fully grasp the scope of the building and all of its individual components within, they begin grouping each element into the previously mentioned categories. Using the previously gathered information, the team is able to allocate the total project costs to each of the categories.

Using the IRS’ tax codes and guidelines, the team determines which assets quality for shorter depreciation periods. Now, based on the depreciation schedule and allocated costs, the team assigns a value to each asset and releases their findings and calculations in a detailed cost segregation report.

The property owner now has a report to take to their tax advisor to discuss potential tax benefits, and can incorporate all of these findings into their new tax filing.


How Can This Benefit Property Owners?

Cost segregation studies have proved to be a very powerful tool because properties are rarely just the structure itself. There are numerous other components that buildings can not function without, such as plumbing, electrical systems, HVAC systems, carpeting, and more.

As a result, property owners can increase their depreciation deductions, and enjoy increased tax deductions, reduced taxable income, and increased cash flow.


Who Can Perform a Cost Segregation Study?

Seeing as these tests can look at very technical and specialized elements of the building, it is not recommended nor acceptable for it to be administered all on your own. Instead, it is most advisable to enlist licensed engineers that carry the necessary level of expertise.


Next Steps

Not sure if performing a cost segregation study is right the move for you? Interested in hearing the pros and cons of this endeavor as it pertains to your individual situation? Contact us today to sort through the benefits and drawbacks of a cost segregation study. We take the time to get know each of our clients and their individual needs, because at the end of the day, our highest priority is you.



At The Hechtman Group Ltd, we understand that tax laws and regulatory and IRS requirements for real estate are vastly different from other financial services. Rich in industry experience, our CPAs and accountants can guide you through all the necessary steps while also creating best practice opportunities for long-term growth.

The Hechtman Group specializes in accounting, tax and business consulting services for individuals, small business owners, and entrepreneurs, with expertise in real estate accounting.

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