Commercial real estate industry insights.

Cost Segregation Benefits Commercial Property Owners

by Matt Rader | Jul 25, 2023

Whether the real estate market is booming or slowing, commercial property owners and investors can improve their financial situation with a cost segregation study.

Property owners who take advantage of cost segregation studies – a comprehensive analysis of various assets associated with a property – can reduce their tax liability and improve cash flow. In simpler terms, property owners are leaving money on the table if they forego using cost segregation for qualified properties, such as new construction, acquisitions, and renovations, and in some cases, older buildings.

Cost segregation is also a smart strategy to use to help cushion the financial blow from properties feeling the pinch from the current economic conditions impacting the CRE market.  

Current federal tax laws set depreciation rates for buildings over 27.5 years (residential) and 39 years (commercial). But cost segregation allows property owners to take deductions sooner (ranging from 5 to 15 years) on certain building components because they depreciate faster than buildings. This is accomplished by categorizing various building components for depreciation as individual assets instead of the entire property.

Cost segregation studies allow property owners to lessen their tax burden by reclassifying components for shorter class lives. For instance, a building’s floor, roof and walls might be classified as 39-year real property, while site improvements such as sidewalks, and landscaping would be treated as 15-year real property. Communications equipment, office furniture, lighting fixtures, carpeting and other items can be classified for shorter periods, ranging from 5 to 7 years, as personal property.

Another benefit of cost segregation studies is that it enhances cash flow, giving property owners more resources to reinvest in their buildings or acquire more properties, as well as providing a more efficient way to manage a property’s operating costs.

How much can property owners benefit from a cost segregation study? That depends on the size and type of property, the type of assets, as well as other factors involved in determining the depreciation of equipment and other building components.

One example that extols the benefits of this tax deferral strategy appeared in a Forbes article. The author wrote that he planned to send an $80,000 tax payment for his property to the IRS, but saved that amount as a result of using a cost segregation study. Another example is a recent BBG cost segregation study that had saved hundreds of thousands of dollars in taxable income for a client’s commercial property.      

Clock is ticking on 2023 bonus depreciation tax deduction.

Time is running out this year for owners and investors to take advantage of deducting 80 percent of taxes of a property’s purchase price under the federal bonus depreciation provision that was created more than two decades ago.

Property owners have until the end of this year to deduct 80 percent from an eligible property’s tax under the bonus depreciation provision, followed with smaller deductions each year until the additional depreciation deduction is completely phased out at the end of 2027.  

The bonus depreciation tax cut was created under The Job Creation and Worker Assistance Act of 2002, allowing property owners to deduct taxes in a property’s placed-in-service year, or when an eligible property is available for a specific use. In 2017, the Tax Cuts and Jobs Act made changes to bonus depreciation which included a write-off of up to 100 percent of the cost of qualified property placed in service between Sept. 27, 2017, and Dec. 31, 2022.

Property Owners Reap Benefits of Cost Segregation with BBG Studies BBG offers in-depth cost segregation studies that will maximize tax deductions and enhance cash flow for owners of virtually every kind of commercial property. BBG also works with accounting firms to provide the appraisal work and engineering and construction expertise needed to maximize tax deductions on properties. To learn more about BBG’s cost segregation service, please contact