Stewart Heath

Cost Segregation

Published on January 08, 2018

The 2017 Tax Cuts & Jobs Act is now law.  While we have gained a great tax rate reduction; we have also gained a little complexity.

Harvard Grace Advisors is in the business of providing engineering based Real Estate Cost Segregation studies to owners of commercial real estate.  Simply put, cost seg allows commercial real estate owners to accelerate tax deductions.  So, with new lower rates is it worth the cost of a study?

The real value of a cost segregation study is the net present value of the up front lower taxes from the higher depreciation deductions in the early years of ownership.  Said another way, the benefits of cost segregation is the tax savings from depreciation deductions before and after the study.  Consequently, the benefit is not tax rate dependent.

Savvy building owners and their tax advisors loaded up tax deductions into 2017 while rates were still high and those deductions were more valuable. If you have commercial real estate holdings, and did not take advantage of accelerating deductions before the end of last year, GREAT NEWS:


Real Estate Cost Segregation

During a cost segregation study, engineers identify assets embedded in a building’s construction or acquisition costs that can be depreciated for tax purposes over five, seven or 15 years, rather than the standard 39 years (27.5 years for residential rental property). The costs associated with these assets are then reclassified, allowing the building owner to accelerate depreciation of the property for tax purposes.

Cost segregation also can be retroactively applied. Under current tax law, you can complete a cost segregation study on a building that was placed in service during a prior year and “catch up” the additional depreciation deductions in the current year. Amended tax returns aren’t required to take the catch-up deductions, and you take those deductions using the current year’s rates by filing an accounting method change with the IRS, i.e., Form 3115. For new buildings placed in service in 2017, additional depreciation benefits may be available.

Any new construction, existing building purchase or renovation costing more than $1 million that occurred in the last 15 years may qualify for cost segregation.

Harvard Grace offers a free preliminary detailed analysis on a case by case basis. This analysis can be used to determine the right timing and strategy for an investor to decide when a cost segregation study would be beneficial.  Harvard Grace will work with your tax advisor in preparing this analysis insure the best outcome for the client.

To receive your free detailed analysis, email me at or call 888.350.1188.