In short
A cost segregation study reclassifies parts of a building, such as electrical systems for equipment, fixtures and land improvements, from long-lived real property into shorter-lived personal property and land improvements.
Key takeaways
- The reclassified assets are depreciated over 5, 7 or 15 years and can qualify for bonus depreciation.
- It accelerates deductions but increases depreciation recapture as ordinary income on sale.
- It is typically done by engineers or specialists.
Where it's tested
TCP: Property Transactions: Advanced Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer sells equipment with an adjusted basis of $60,000 (original cost $100,000, accumulated depreciation $40,000) for $120,000, receiving payments over four years. What is recognized in the year of sale beyond any installment gain on the first payment?