How Cost Segregation Studies Help Property Owners Maximize Tax Savings in 2025

As a property owner or investor, you’re always looking for ways to reduce tax liability and improve cash flow. A well-executed cost segregation study may offer substantial benefits by accelerating depreciation and unlocking value. In this article we’ll explain what a cost segregation study is, how it works, who benefits most, and why 2025 presents a timely opportunity to act.

What is a Cost Segregation Study?

A cost segregation study is an engineering-based tax strategy that identifies and reclassifies certain components of a building so they can be depreciated over shorter lives (for example 5, 7 or 15 years) instead of the standard 27.5 years (for residential rental property) or 39 years (for commercial property)

In simple terms: when you purchase, build or renovate a property, not all of it must be treated the same for depreciation. Many of the building’s systems, finishes and land improvements may qualify for much quicker depreciation, which means earlier tax deductions and improved cash flow.

How the Process Works

First, a feasibility review: the study team reviews your property purchase, construction, or renovation transaction.
Next, engineering and cost analysis: your property is broken down into components such as flooring, wiring, plumbing, exterior improvements, site work, etc.
Then the depreciation reclassification: some of those components are moved into shorter life classes (5, 7, 15 years) rather than the standard 27.5 or 39 years.
Finally, tax filing and cash-flow impact: you claim the accelerated depreciation amounts, reduce taxable income and free up funds for reinvestment, debt reduction, or simply improving your operating margin.

While the optimal time to perform a study is in the same year as acquisition or renovation, look-back studies are possible for certain properties.

Who Benefits Most from a Cost Segregation Study?

This strategy is particularly beneficial for:

Owners of commercial properties (office buildings, retail centers, industrial facilities) with significant purchase, construction, or renovation costs.
Investors with rental properties who are looking to maximize tax efficiency.
Properties placed in service within the last 10-15 years or newly acquired/renovated properties where many components remain in service life.
Owners or investors who intend to hold the property long enough to benefit from accelerated depreciation and are comfortable with the complexity of the study.

Common Myths and Misconceptions

Here are a few things people often assume that may not be true:

“It’s only for large companies.”
While larger investments often show clearer benefit, many mid-sized property owners qualify.
“It triggers audits.”
A quality study (with engineering documentation and tax-expert review) actually helps defend your depreciation positions.
“It’s too late for older properties.”
Not always. “Look‐back” or retrospective cost segregation studies may unlock missed deductions if done correctly.

Return on Investment: What the Numbers Show

Studies show that a cost segregation study often delivers strong returns. For instance, many firms estimate a >10:1 return on fees paid for the study.

Here’s a simplified example:

Assume you purchase a commercial building for $1 million (excluding land). If you depreciate it straight‐line over 39 years, your annual depreciation deduction is approx. $25,641. Contrastingly, a cost segregation study might identify $200-$300k of components eligible for 5, 7 or 15-year lives. Your first-year deduction could jump significantly, producing tens of thousands more in tax savings and improving your cash flow.

That extra cash flow can be reinvested in your property (maintenance, upgrades), used to pay down debt, or fund new acquisitions. It’s one of the reasons this strategy is so popular among property investors.

Why Now is a Good Time to Act (2025 Focus)

With tax law changes and an evolving real-estate market, 2025 presents a timely opportunity for property owners to engage in a cost segregation study. While earlier years offered 100% bonus depreciation, the environment is shifting – making a proactive study even more important to secure maximum allowable benefits.

Additionally, waiting too long may reduce the value of accelerated deductions. Conducting a study sooner allows you to lock in benefits and integrate the findings into your tax-planning and capital-budgeting strategies.

How We Can Help at Criterium-Cromer Engineers

At Criterium-Cromer Engineers we specialize in Reserve Studies and Structural Integrity Reserve Studies (SIRS) for condominium associations in South Florida. But we also partner with tax and engineering professionals to perform cost segregation studies for commercial and income-producing properties. If you’re exploring whether a cost segregation study is right for your property, here’s how we support you:

Initial property assessment and feasibility review.
Engineering breakdown of building components and classification of depreciable lives.
Co-ordination with tax professionals to ensure the study aligns with your tax strategy.
Clear deliverables and documentation to support your depreciation positions and prepare for audits.

To explore whether your property qualifies and estimate potential savings, contact us via our Cost Segregation Services page or call our office to set up a consultation.

Conclusion

A cost segregation study is a well-established tool that allows property owners to accelerate depreciation, reduce tax liability and free up cash for reinvestment. When executed properly, the benefits extend beyond the initial tax year and support long-term asset strategy. With 2025 upon us, conducting a study now may position you for better cash flow and tax outcomes in the years ahead.

If you’d like to learn more or receive a customized analysis for your property, we invite you to contact Criterium-Cromer Engineers for a discussion.

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