If you are planning on buying or improving a building for your business, your CPA may recommend a cost segregation, which is an asset depreciation technique. This technique separates real estate into personal property, land improvements, buildings, and land, and then depreciates personal property and land improvements at an accelerated rate. This would reduce the building owner’s tax obligations.
Personal property would include things like furniture, window treatments, and some fixtures. Land improvements would include a sidewalk or a fence. Because these items are useful for a relatively short period of time, they can be depreciated more quickly than buildings or land. The buildings category includes each of the building’s separate components, like the roof or the walls, each of which can be depreciated at a different rate. The value of the building that is not accounted for in personal property, land improvements, or buildings is allocated to the land category.
An important component of conducting a cost segregation study is hiring an appraiser who can conduct a site inspection and substantiate the value of any equipment or machinery on the property that would fall under the personal property or buildings categories of the cost segregation.
