Tags: CPA Sarasota, Overlooked Tax Deductions, QuickBooks Bookkeeping, Tax Planning

One significant tax benefit of owning residential rental property or non-residential commercial or investment property is depreciation. This is a deduction you get without spending any additional money.

But regular depreciation for real property is slow. Residential rental property is depreciated over 27.5 years and non-residential property over 39 years, providing a relatively small deduction each year.

Fortunately, there is a way you can speed up your depreciation deductions—especially during the first year or years you own the property: cost segregation.

“Cost segregation”

Is the technical term for separately depreciating the elements of property that are not real property. These are elements other than land, buildings, and building components.

They include:

  • improvements made to the land, such as landscaping, swimming pools, paved parking areas, and fences; and
  • personal property items inside a building that are not building components—for example, refrigerators, stoves, dishwashers, and carpeting in residential rentals.

Using cost segregation does not increase a property owner’s total depreciation deductions, but it does accelerate them over the first few years. This is because personal property has a five- or seven-year depreciation period and land improvements a 15-year period.

In addition, by using bonus depreciation and/or Section 179 expensing, owners can deduct all or most of the cost of personal property and land improvements the first year they own the property. This provides a potentially enormous first-year deduction.


A cost segregation study must be conducted to identify which building elements are personal property and land improvements and then to determine their depreciable basis.

Studies can be conducted by engineers or done more cheaply with other methods that the IRS views as less reliable.

Timing and what to watch out for

Cost segregation may not be advisable for every property owner.  For example, where it results in a loss that can’t be deducted due to the passive loss rules, or where the owner intends to sell the property within a few years and has to recapture as ordinary income the cost-segregated depreciation deductions.

The best time to perform a cost segregation study is the same year you buy, build, or remodel your real property. But you can wait until a future year—perhaps when you have enough rental or other passive income to use the speeded-up depreciation deductions.

Here’s How We Can Help

Sterling Tax and Accounting is here to help your business with tax planning!  Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket.  If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.

Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.

Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.

Welcome to the Sterling Standard of business!  Want to learn more?  Schedule a meeting with our tax planning team here:  https://www.sterling.cpa/contact-us/

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