Cost segregation is a tax strategy that involves identifying and reclassifying components of a real estate property to accelerate depreciation deductions for tax purposes. Typically, buildings are depreciated over long periods-27.5 years for residential and 39 years for commercial properties. However, cost segregation breaks down the property into parts that can be depreciated over shorter periods, such as 5, 7, or 15 years. This allows property owners to reduce their current income tax liabilities and increase cash flow by frontloading depreciation expenses

. A cost segregation study is usually conducted by specialists with expertise in engineering, construction, tax law, and accounting. They analyze the building's components-such as plumbing fixtures, electrical systems, flooring, and land improvements like parking lots and landscaping-to classify assets into appropriate tax categories. This process often involves reviewing architectural drawings, blueprints, and purchase documents to allocate costs accurately

. The benefits of cost segregation include accelerated depreciation, reduced tax liability, improved near-term cash flow, and potential tax savings on both new and existing properties. It is especially beneficial for properties purchased, constructed, expanded, or remodeled since 1987, and is most cost- effective for properties with construction or purchase costs over $750,000

. Recent tax law changes, such as the Tax Cuts and Jobs Act of 2017, have enhanced the benefits of cost segregation by allowing 100% bonus depreciation on qualifying assets, including used property acquired after September 27, 2017

. In summary, cost segregation is a strategic tax planning tool that accelerates depreciation by separating property components into shorter-lived asset categories, thereby increasing cash flow and reducing tax burdens for real estate owners