Cost segregation can offer huge tax benefits to real estate owners willing to commission what may be a complex and expensive study. Instead of viewing real estate as being comprised of just land and buildings, cost segregation generally aims to segment a real estate owner's cost basis into hundreds of separate items, some of which constitute tangible personal property and land improvements. This method of cost allocation generally enables a real estate owner to increase the rate at which it depreciates its property, taking advantage of the fact that personal property and land improvements can be depreciated significantly faster than the 39-year straight-line depreciation for a commercial building. It is no surprise that the popularity of cost segregation has surged over recent years.
In 2012, the Tax Court in Peco Foods, Inc. v. Commissioner1 took some by surprise in disregarding the real estate purchaser's post-closing cost segregation study. The U.S. Court of Appeals for the Eleventh Circuit recently upheld the Tax Court's decision. What does this case mean for cost segregation?
