Cost Segregation Case Study

Optimizing Cash
Flow for Hotel Owners

$9,400,000

Property Purchase Price

$1,254,528

1st Year Tax Savings

100%

Bonus Depreciation

Property Overview

This case study highlights a hotel property acquired in June 2020 for $9,400,000 (excluding land). The building spans 47,890 square feet, with an entire site footprint of 59,855 square feet. The study was applied to the 2020 tax year, with a tax rate of 37% and a present value rate of return of 8%.

The analysis ensures full utilization of available tax-saving strategies, with 100% bonus depreciation applied, maximizing the financial benefits for the property owner.

Property TypeHotel
Purchase price(less land)$9,400,000
Building sqft47,890
Entire site sqft59,855
Data acquiredJune 2020
Tax year study applied2020
Tax rate37.0%
Present value rate of return8%
Bonus depreciation100%

Building Allocation After Study

Cost Segregation Study Benefits

The cost segregation study provided significant tax savings for the hotel property, delivering an impressive $1,254,528 in tax savings within the first year. Over a 10-year period, the net present value (NPV) of savings reached $1,045,281, while the total NPV over the remaining life of the property amounted to $862,714. When reinvested, these savings equate to a future value of $15,499,472.

Additionally, the study reallocated building components into accelerated depreciation categories, with $2,519,200 assigned to 5-year property, $911,800 to 15-year property, and $5,969,000 to 39-year property, allowing for substantial upfront deductions and improved cash flow.

Financial Benefits Achieved

Immediate Tax Savings$1,254,528
NPV Over 10 Years$1,045,281
NPV Over Remaining Life of Property$862,714
Future Value of Invested Savings$15,499,472

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Frequently Asked Questions

What is the benefit of a Cost Segregation Study?
What is the benefit of a cost segregation study?

A Cost Segregation study reduces a building owner’s income taxes up to $100,000 for every $1 mill in building costs.  The tax savings are anywhere from 3-10% of the building cost.

What is a cost segregation study?
What is a cost segregation study?

A cost segregation study is an engineering-based analysis that reclassifies commercial real estate components and improvements between real and personal property. This reclassification accelerates the depreciable lives from 27.5- or 39-years to 5-, 7-, or 15-years.

What real estate components can typically be accelerated through a cost segregation study?
What real estate components can typically be accelerated through a cost segregation study?

A cost segregation study can typically accelerate depreciation on many building components, including:

  • Electrical installations (e.g., dedicated computer power, special lighting) 
  • Plumbing systems (e.g., kitchen plumbing, bathroom fixtures) 
  • HVAC components 
  • Flooring (e.g., carpet, vinyl, tile) 
  • Window treatments 
  • Cabinetry and countertops 
  • Decorative finishes and millwork 
  • Security systems 
  • Fire protection systems 
  • Parking lot paving and lighting 
  • Landscaping and site improvements 
  • Certain building exterior components
Does my property qualify for a cost segregation study?
Does my property qualify for a cost segregation study?

Your property likely qualifies if:

  • It’s a commercial building or building improvements with a remaining depreciable basis
  • The building or improvement cost basis is at least $200,000
  • You anticipate holding the property for at least three years
When should a cost segregation study be done?
When should a cost segregation study be done?


A study can be completed in the year the building or improvements are placed in service. However, it can also be done on properties acquired or constructed since 1986 without amending prior years’ tax returns.

How long does a cost segregation study take?
How long does a cost segregation study take?

A cost segregation study typically takes approximately three to six weeks from the time we receive all the appropriate documentation.

What information is needed to complete a cost segregation study?
What information is needed to complete a cost segregation study?

Generally, we request:

  • A current tax depreciation schedule
  • Building cost information
  • Blueprints or architectural drawings and renovation plans, if applicable
  • Access to the property for an on-site inspection and walk-through
How much can I save with a cost segregation study?
How much can I save with a cost segregation study?

Savings vary, but within the first five years of building ownership, owners could save up to $100,000 for every $1 million in building costs.

Will a cost segregation study trigger an audit?
Will a cost segregation study trigger an audit?

No, a properly conducted cost segregation study has never triggered an audit. In fact, if you are audited for any reason and the study comes into question, CSSI will defend the audit at no cost.

Can a cost segregation study be done on buildings not yet constructed?
Can a cost segregation study be done on buildings not yet constructed?

While a full study can’t be done on unconstructed buildings, CSSI can provide estimates on tax savings from your construction budgets. A full study will be delivered when construction is complete.


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