Cost Segregation: The Cash Hiding in Your Commercial Property

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By Steve Beck, principal of COBE Real Estate, Inc.

In today’s market, it’s critical that every business seeks opportunities to save money. Reducing your monthly payment by purchasing your office space is an excellent place to start. An added bonus to owning your commercial space is Accelerated Depreciation using an Engineer-Based Cost Segregation Study.

What is Cost Segregation?

Cost Segregation is a tax strategy that allows significant portions of your building’s cost (around 40% to 60%) to be depreciated in as few as 5, 7, and 15 years, instead of the standard 39 years for commercial property. By speeding up depreciation, you maximize tax deductions faster, lower your taxable income, and significantly increase cash flow.

Think of it this way…if you were given a bag of cash with $1,000,000 inside with the option to either use that money in 39 years or use it today, which would you choose? Well, most people are going to use it today because a million dollars today is worth much more than a million dollars in 39 years.

This is the same concept with Cost Segregation…a tax deduction today is worth much more than that same tax deduction years later. Property owners who utilize Cost Segregation, capitalize on the time value of money!

Cost Segregation Graphic

Who Qualifies for Cost Segregation?

Cost Seg is available to any commercial property owner (who is subject to federal and state tax laws) who has purchased, constructed, renovated, remodeled, or expanded any commercial property since 1987. This would include office buildings, medical/dental suites, warehouses, restaurants, apartment complexes, retail, etc. This also includes leasehold improvements (over $100K) and 1031 Exchange properties.

How Much does a Cost Seg Study Cost?

Typically, a Cost Seg Study is effective if:

  • the property has a minimum value of $500,000 (including tenant improvements).
  • you plan on keeping the property for at least 2 years.
  • you have taxable net income.

The after-tax savings can be well in excess of 5-15 times the one time cost of the study which typically runs between $6,000 and $12,000 for a new 2,500 to 50,000 SF property.

While the IRS does allow you to “catch-up” any missed depreciation from years past, the best time to perform a Cost Seg Study is the year in which the building is purchased, constructed, or renovated. If you are interested in getting a projection of savings for your current office or an office you are looking to purchase, we can set up a meeting to show you the potential savings.

As COBE Real Estate does not give legal or tax advice; if you are interested in learning more about the advantages of cost segregation, we can refer you to the firm we use to assist you.



Steve Beck, principal and president of COBE Real Estate, has over 18 years of experience in real estate brokerage and development. He has participated in the acquisition, sales, and development of over $500 million worth of commercial and residential developments in both Utah and Arizona totaling over 2 million SF. From this, he has established quality and long lasting relationships with commercial real estate owners and tenants. Steve’s background in real estate brokerage, development, and investment provides a strong foundation of knowledge and experience in the real estate field.