Cost Segregation

Definition

Breaking down property components into depreciable categories with different useful lives to accelerate tax deductions—basically legal tax magic for real estate investors.

Example Usage

Our CPA recommended cost segregation to separate the building systems from the structure itself, creating $50,000 in first-year depreciation.

Origin

Tax strategy formalized in the 1990s with IRS approval

Fun Fact

Cost segregation studies can cost $15,000-$30,000 but generate six figures in tax savings, making them among the best ROI investments in real estate.

Source: IRS Depreciation Standards

Related Terms

Intermediate

REO

Real Estate Owned—a property that reverted to a lender's ownership after a failed foreclosure auction. These are the banking industry's participation trophies, proving they're now reluctant landlords who just want their money back.

🏠 Real Estate

Beginner

lowball

An offer significantly below asking price, typically submitted either by savvy investors testing motivated sellers or by delusional buyers who think every property is overpriced. It's a negotiating tactic that's either brilliant or insulting, depending on which side you're on.

🏠 Real Estate

Advanced

Accredited Investor

Someone meeting SEC wealth requirements ($200,000+ annual income or $1M+ net worth) eligible for private real estate securities—basically the rich kids' club.

🏠 Real Estate

Advanced

loss mitigation

Strategies employed by lenders to avoid foreclosure when borrowers can't make payments, including loan modifications, short sales, or forbearance. The bank's damage control department.

🏠 Real Estate

Intermediate

discount points

Prepaid interest paid at closing to reduce your mortgage rate, with each point costing 1% of the loan amount. The financial equivalent of paying now to save monthly forever, assuming you stay in the house long enough to break even.

🏠 Real Estate

Advanced

right of first refusal

A contractual right giving someone the first opportunity to purchase a property before the owner can sell to others. It's like a permanent dibs on real estate.

🏠 Real Estate

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