Accelerate Depreciation and Maximize Cash Flow with a Cost Segregation Study
By: Chelsea Smith, CPA, Tax Manager
Did you know your commercial property could be a hidden source of cash flow? Many business owners and investors overlook a powerful tax-saving strategy that can unlock significant financial benefits. A cost segregation study is a strategic tax planning tool that allows property owners to accelerate depreciation and claim larger deductions sooner, increasing cash flow and reducing tax liability.
At Squire, we help businesses like yours take full advantage of their property investments by identifying assets that can be depreciated faster. This approach can lead to immediate tax savings, which can be reinvested into your business to fund growth, expansion, or other critical financial needs.
What is a Cost Segregation Study?
A cost segregation study is an IRS-approved method of reclassifying building components into shorter depreciation categories. Traditionally, commercial properties are depreciated over 27.5 years (residential rental properties) or 39 years (commercial buildings).
However, many elements within a building—such as lighting, HVAC systems, specialized plumbing, and interior finishes—may qualify for shorter depreciation periods of 5, 7, or 15 years.
By accelerating depreciation, businesses can increase their deductions in the early years of ownership, significantly lowering taxable income. This strategy is particularly valuable for companies looking to reinvest in their operations, manage cash flow more effectively, and optimize tax efficiency.
Who Benefits from a Cost Segregation Study?
A cost segregation study is ideal for business owners and investors who:
- Own or lease commercial real estate
- Have recently purchased, constructed, or renovated a property
- Want to increase cash flow by accelerating tax deductions
- Are looking to reduce their tax burden and reinvest savings
Industries that commonly benefit from the study include:
- Real Estate & Property Management – Apartment complexes, office buildings, mixed-use development
- Manufacturing & Industrial – Warehouses, distribution centers, production facilities
- Hospitality & Retail – Hotels, restaurants, shopping centers
- Healthcare Facilities – Medical offices, dental clinics, hospitals
Bottom line: If you own property or have recently made significant improvements to a building, a cost segregation study can provide immediate financial relief and long-term tax advantages—potentially saving thousands or even millions in taxes.
When to Conduct a Cost Segregation Study?
The sooner you conduct a cost segregation study, the sooner you can begin capturing tax savings. Current tax laws offer bonus depreciation incentives, allowing businesses to write off a significant portion of qualifying assets immediately.
Here’s why you should act sooner rather than later:
- Maximize Bonus Depreciation – Under current tax laws, businesses can still take advantage of bonus depreciation. Which, for 2024, is 60% on qualified property placed in service during the tax year
- Immediate Cash Flow Benefits – The earlier you complete a study, the more tax savings you can realize in the current tax year.
- Compliance with IRS Guidelines – Properly documenting asset classifications ensures your deductions stand up to IRS scrutiny, reducing audit risk.
With changing tax regulations, acting now ensures you capture the maximum benefit before potential law adjustments.
Why Choose Squire?
At Squire, we get that navigating the complexities of tax strategy and depreciation rules can be overwhelming. That’s why we bring a combination of technical expertise and in-depth industry knowledge to ensure our clients achieve the best possible tax savings.
We simplify the process, ensuring compliance while helping you unlock hidden cash flow opportunities. With Squire by your side, you can save money, optimize your tax strategy, and focus on growing your business.
A cost segregation study can be one of the most impactful financial decisions you make for your business. If you’re ready to explore how much you could save, contact Squire today for a consultation.