Dave,

A 'Cost Segregation Study' (CSS) is a method that reallocates the capitalized cost of real property improvements from 27.5 years (for residential) or 39 years (for nonresidential) to 5 year property, 15 year property and 27.5 or 39 year property.  This effectively accelerates the tax depreciation and hence the annual cash flow for an investor.  To achieve the maximum benefit, it is recommend that a CSS be done during the first tax year of acquisition.  However, there is a procedure that a retroactive CSS can be done several years after the initial acquisition which would result in a substantial favorable adjustment to the taxpayer's tax liability.

Due to the cost of a CSS, a property should have a minimum cost basis (purchase price PLUS indirect purchase costs LESS land value) of around $500,000 to achieve a satisfactory cost/benefit ratio.  A CSS should have a benefit of at least 10 times the cost of the study.

Feel free to call me if you have any questions.

Dan Luby 407-228-0820

Hey Dave:

if the sales price does not meet or exceed one million dollars on a multi-family deal, there is little cost to benefit advantage in having a cost segregation study performed. One must also be careful because there are as many peculiarities and definitions as there are taxing authorities nationwide with respect to the breaking out of personal property vs real property to base a revised tax rate on. If you would care to discuss this further, call me directly at 610.579.9147 OR email at greg.hartigan@cbre.com

Best Regards

Greg