If you own a commercial building, short-term rental, or investment property, you may be missing out on one of the most powerful tools in the tax code: a cost segregation study.
Cost segregation is a legal, IRS-recognized strategy that helps you accelerate depreciation and reduce your taxable income—often resulting in five- to six-figure savings. At King of Kings Firm, we help clients identify when a cost segregation study makes sense and how to implement it as part of a larger tax-planning strategy.
What Is a Cost Segregation Study?
A cost segregation study breaks down the components of your building—like electrical, plumbing, flooring, and fixtures—and reclassifies certain items for faster depreciation.
Instead of depreciating everything over 27.5 or 39 years (for residential or commercial property), you can reclassify many components into:
5-year property
7-year property
15-year property
That means bigger deductions right now, not decades from now.
📌 Example: A $1 million building might produce $150,000–$250,000 in front-loaded depreciation after a cost segregation study—cutting your tax bill significantly in the first few years.
How Does It Work?
Here’s what happens during a cost segregation study:
A qualified team (usually CPAs and engineers) conducts a physical or virtual review of the building.
They identify and separate short-lived assets from the structure (e.g., carpet, wiring, specialty plumbing).
A detailed report is issued showing how much of the property qualifies for accelerated depreciation.
The result? You get a new depreciation schedule—and a much lower taxable income.
Who Should Consider a Cost Segregation Study?
A cost segregation study is most beneficial if you:
Own a building or commercial property worth $500,000 or more
Recently purchased, built, or renovated a property
Hold short-term rentals or multifamily units
Expect a high-income year and need bigger write-offs
Plan to sell the property later and want to time depreciation strategically
🧠 Pro tip: You can even do a cost segregation study on properties acquired in previous tax years (lookback studies) and claim catch-up depreciation.
Real Example: The Warehouse Write-Off
Client Profile:
A distribution company in Georgia bought a $1.2 million warehouse and used standard depreciation over 39 years.
What We Did:
Coordinated a cost segregation study
Reclassified lighting, interior walls, and HVAC ductwork
Accelerated depreciation on $315,000 of assets into the first 5 years
Outcome:
$85,000+ in tax savings in year one, with continued annual benefits.
Potential Risks or Downsides?
Cost segregation is IRS-approved, but it must be done correctly by experienced professionals. Risks include:
Poor documentation leading to audit red flags
Depreciation recapture at the time of sale (which we help you plan for)
Not worthwhile for smaller properties
That’s why at King of Kings Firm, we work with certified engineers and tax experts to ensure accuracy, audit defense, and long-term planning alignment.
How It Fits Into a Bigger Tax Strategy
Cost segregation isn’t a one-off deduction—it’s a cornerstone of proactive tax planning for property owners. Combined with other strategies like 1031 exchanges, bonus depreciation, and retirement planning, it can unlock major wealth-building potential.
Want to reduce this year’s tax bill and create room to reinvest? A cost segregation study could be the move.
Final Thoughts
A cost segregation study can dramatically reduce your tax bill and free up cash to grow your business or expand your portfolio. It’s not just a strategy for big corporations—it’s available to savvy small business owners and investors, too.
At King of Kings Firm, we’ll help you assess whether cost segregation is right for you and coordinate the entire process—from analysis to implementation.
📞 Schedule a free consultation today and discover how much you could save.
Frequently Asked Questions
Yes—cost segregation is commonly used for both residential rental and commercial properties, especially short-term rentals or multifamily units.
It varies, but most range from $5,000 to $15,000 depending on property complexity. The tax savings usually far outweigh the cost.
Possibly. Accelerated depreciation can trigger recapture tax when you sell, but this can often be minimized with smart planning like a 1031 exchange.
