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Cost segregation is the process of identifying and separating assets that can be classified as personal property. This allows property owners to accelerate depreciation, reducing or deferring tax liability and increasing cash flow in the short term.

Any property that was purchased or constructed after 1986 is eligible for cost segregation depreciation, as long as the property is located in the U.S. and the depreciable cost basis is $300,000 or above. Properties that have undergone major renovation after 1986 may also qualify, as may some types of leasehold improvements.

Cost segregation is allowed under the U.S. tax code. Like any other strategy designed to minimize tax liability, some people may push the boundaries past the point of legality. It is impossible to predict whether the IRS will want to review your study or not. However, as long as you remain in compliance with the applicable laws and federal codes, you should not experience adverse consequences. If you are subject to an audit, the IRS audit guidelines state, unless the subject cost segregation study is performed by a qualified party, the study must be reviewed with a higher level of scrutiny. For this reason, you must choose a qualified cost segregation advisor to perform your study.