Financial Glossary
Cost Segregation
Cost segregation is a tax-planning strategy that accelerates depreciation on real estate by identifying and reclassifying building components, such as fixtures, flooring, landscaping, and certain electrical and plumbing, into shorter MACRS recovery periods of 5, 7, or 15 years instead of the standard 27.5 or 39 years. An engineering-based cost-segregation study front-loads depreciation and improves near-term cash flow.
Problem & Application
Owners of campgrounds, RV parks, and short-term rentals often leave large first-year deductions on the table by depreciating the entire property over 39 years. A cost-segregation study, frequently paired with bonus depreciation, can move a meaningful share of basis into 5 to 15 year classes and generate substantial early deductions. The tradeoffs are the study's cost and depreciation recapture on sale, so it should be modeled before electing.
In Short
Cost segregation is one of the highest-impact tax strategies for real-estate and hospitality owners, accelerating deductions and freeing cash when the numbers justify the study.
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