The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

What is Cost Segregation Analysis?

Cost segregation is the act or process of identifying the various personal property assets that are grouped with real property assets, generally in large commercial real estate properties, and separating out the personal property assets for income tax reporting purposes.

A cost segregation study (CSS), also known as a cost segregation analysis or report, identifies and reclassifies the various personal property assets contained within the property in order to shorten the depreciation time for income tax reporting purposes.  This in turn reduces the current income tax obligations due by the taxpayer because of the faster depreciation (write off) schedules.

Asset Re-classification 

A detailed analysis of the various capital expenditures is used to determine the appropriate asset classifications contained with in a property.  Cost segregation analysis identifies the building costs that would typically be depreciated over a 27.5 or 39.0 year period and reclassifies into more appropriate asset classes that permit a shorter, accelerated method or schedule of depreciation for certain building costs. 

Costs for non-structural components such as wall covering, carpet, accent lighting, portions of the electrical system, and exterior site improvements such as sidewalks and landscaping, can very often be depreciated over a five, seven or 15 year period, rather than over the traditional 27.5 or 39.0 years, producing significant income tax benefits.

Eligible Asset Classes

Real property eligible for a cost segregation analysis includes commercial buildings that have been purchased, constructed, expanded or remodeled since 1987.  A cost segregation study is typically cost-effective for buildings or structures that have been purchased or remodeled at a cost greater than $200,000.  A cost segregation study is most efficient for new commercial properties that were recently constructed, but it can also uncover retroactive income tax deductions for older commercial buildings which can generate significant short-term income tax savings due to "catch-up" depreciation that is permitted under the tax code and regulations.