Case Study
A property was acquired for $175,000. The acquisition cost includes the purchase price plus all closing, legal, accounting, and inspection fees.
Acquisition Cost
Land Value
Depreciable Amount
$175,000
$31,500
$143,500
Without Cost Segregation
Depreciable Basis
Depreciation Period (Years)
First Year Depreciation
Subsequent Years Depreciation
$143,500
27.5
$5,218
$5,218
Without cost segregation, the entire depreciable basis of $143,500 is capitalized over 27-1/2 years using straight-line depreciation.
With Cost Segregation
1
Method
Real Property
27.5 Years S/L
Component
Personal Property
5 Years DDB
Land Improvements
15 Years DDB
First Year Depreciation
Subsequent Years Depreciation
Basis
Depreciation
$97,580
$30,135
$3,548
$12,054
$15,785
$143,500
$1,579
$17,181
Varies
With cost segregation, components identified as personal property and land improvements are segregated and depreciated over accelerated time periods of 5, 7, or 15 years using the double declining balance metodolgy per IRS guidelines.
Look-Back Study - 3 Year Catch-Up
2
Method
Real Property
27.5 Years S/L
Component
Personal Property
5 Years DDB
Land Improvements
15 Years DDB
First Year Depreciation
Subsequent Years Depreciation
Basis
Depreciation
$97,580
$30,135
$10,645
$23,626
$15,785
$143,500
$4,278
$38,549
Varies
Originally capitalized without a cost segregation study, the property is eligible for a look-back study and claim for catch-up depreciation not already taken.
1. Illustrations based on average allocations. Actual results may be higher or lower than those indicated
2. Look-back studies can be performed for any number of years. It is suggested that a cost/benefit analysis be performed for look-backs of fifteen years or more.