Cost segregation is one of the most effective tax strategies for property owners and investors looking to accelerate depreciation and improve cash flow. Yet, misconceptions often keep businesses from taking advantage of its full potential.
At Ayming USA, our engineers and tax experts deliver detailed cost segregation studies that meet IRS standards—helping clients uncover hidden value in their real estate assets while minimizing tax liability.
Let’s clear up the most common myths and look at the trusted methods behind every quality cost segregation analysis.
Six Myths of Cost Segregation
- Cost segregation is only for large commercial properties.
While large commercial buildings yield substantial benefits, cost segregation can also deliver strong returns for smaller properties such as multifamily housing, retail stores, or offices. Any property with depreciable improvements can qualify. - Cost segregation is limited to newly constructed properties.
Cost segregation isn’t just for new builds. It can apply to renovations, acquisitions, and even older properties placed in service in prior years through a look-back study. - A study must be completed in the year of acquisition.
False. The IRS allows retroactive application of cost segregation benefits by filing Form 3115 (Change in Accounting Method), enabling you to claim missed deductions without amending prior returns. - Cost segregation studies are complicated and expensive.
When handled by experienced professionals, the process is efficient and delivers a clear ROI. Ayming’s streamlined methodology minimizes disruption while maximizing savings potential. - Benefits are offset due to recapture tax upon sale.
While depreciation recapture exists, the time value of money makes early deductions advantageous. Accelerating deductions frees up capital now—improving reinvestment opportunities and after-tax returns. - Cost segregation is a tax loophole and increases audit risk.
This is a long-standing misconception. Cost segregation is fully recognized by the IRS when supported by a properly documented engineering study. A credible report strengthens your audit defense.
Six Methods of Cost Segregation
The IRS acknowledges multiple methodologies for conducting cost segregation analyses. The best results come from approaches grounded in engineering and documentation.
- Detailed Engineering Approach from Actual Cost Records
Analyzes real construction cost data for the highest level of precision and audit defensibility. - Detailed Engineering Cost Estimate Approach
Applies engineering judgment and industry cost data when actual records are incomplete or unavailable. - Survey or Letter Approach
Collects cost details directly from contractors, suppliers, or project stakeholders to allocate costs accurately. - Residual Estimation Approach
A top-down method that subtracts non-personal property components from total project cost to isolate qualifying assets. - Sampling or Modeling Approach
Ideal for portfolios with multiple similar properties—results from representative samples are applied across assets. - “Rule of Thumb” Approach
A rough estimation method lacking documentation. The IRS advises examiners to treat this approach with caution.
Cost Segregation Questions to Consider
Before starting a study, ask the following:
- What types of properties qualify?
Office buildings, retail spaces, apartments, hotels, manufacturing facilities, medical offices, and warehouses can all benefit. - When does it make sense to do a study?
If your property’s cost exceeds $500,000—or if you’ve made significant improvements or renovations—a study can unlock meaningful tax savings. - How can tax professionals identify opportunities?
Clients with depreciable property, large fixed-asset schedules, or recent acquisitions are strong candidates for a cost segregation analysis. - What information is needed?
Construction drawings, cost reports, depreciation schedules, and invoices help our team conduct a comprehensive benefit analysis.
Partner with Ayming USA
A cost segregation study can transform your tax position, freeing up capital for reinvestment and growth. Ayming USA’s multidisciplinary team ensures every study is accurate, defensible, and fully aligned with IRS guidelines.
