What Is Cost Segregation?
Cost segregation is an IRS-approved tax strategy that enables commercial property owners to accelerate depreciation and enhance their cash flow. By breaking down a building into its individual components—like electrical and mechanical systems, finishes, and land improvements—a study reclassifies certain qualifying parts of the building from 39-year property to 5-, 7-, or 15-year property.
That reclassification means you can take larger depreciation deductions sooner, freeing up cash for reinvestment. Many Tri-Merit clients think of it as similar to an interest-free loan from the IRS—money you get now, that you’d otherwise wait decades to deduct. It’s one of the easiest ways to free up large amounts of capital in a short period of time.
Learn more about how cost segregation works.
Which Properties Qualify?
Almost any building used for business or investment purposes can benefit from a cost segregation study.
This includes:
· Apartment complexes
· Auto dealerships
· Grocery Stores
· Hospitality
· Manufacturing facilities
· Medical Buildings
· Office buildings
· Restaurants
· Retail spaces
· Tenant improvements
· Warehouses
If you own or have recently built, purchased, or renovated commercial property, it’s worth a free feasibility review.
Start a no-cost feasibility analysis.
Can I Do Cost Segregation Myself?
While technically possible, it is strongly discouraged.
The IRS’s Cost Segregation Audit Techniques Guide makes it clear that the best practice is to use an independent third party with both engineering and tax expertise. DIY allocations are often challenged or disallowed because they lack supportable documentation or a defensible methodology.
Tri-Merit’s studies are fully defensible and backed by detailed engineering reports, providing confidence and audit defense support if needed.
Explore Tri-Merit’s audit-ready methodology.
When Is the Best Time to Perform a Study?
The ideal time is as soon as a property is constructed, purchased, or renovated—when documentation is fresh and all relevant details are available. However, it’s never too late. If your property is already in service, Tri-Merit can perform a lookback study and claim missed depreciation through a Form 3115 (Change in Accounting Method) without amending prior returns.
Even if your building is 10–20 years old, you may still qualify for “catch-up” depreciation and immediate tax savings.
Will My CPA Agree with the Study?
Yes, if the study is properly documented and conducted by qualified professionals. Tri-Merit collaborates directly with your CPA, providing drafts, data transparency, and line-by-line breakdowns that integrate smoothly into your tax return.
Will Cost Segregation Trigger an Audit?
No. Cost segregation is an IRS-approved method for calculating depreciation. There’s no evidence it increases audit risk, and reputable providers like Tri-Merit include comprehensive audit support with every engagement.
What Happens When I Sell My Property?
When you sell, depreciation taken over time may be subject to recapture; however, the overall cash flow advantage realized during ownership typically outweighs the recapture impact, especially since recapture rates are often lower than the top federal income rates.
If you plan to sell within five years, it may make sense to delay a study. But for long-term holds or 1031 exchanges, cost segregation remains a strong tool for improving liquidity and reinvestment capacity.
Ask Tri-Merit about 1031 exchanges and recapture strategy.
How Tri-Merit Delivers More
· Engineering Precision: Studies led by engineers, reviewed by tax experts.
· Audit-Ready Documentation: Built to withstand IRS scrutiny.
· Collaboration with CPAs: Seamless integration into your tax filings.
· National Reach: Trusted by manufacturers, real estate developers, and architects nationwide.
Tri-Merit is not just a vendor; we’re your specialty tax partner, helping you identify opportunities across the specialty tax space.
See all Tri-Merit specialty tax services.
Ready to Find Out What You Could Be Saving?
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