Glossary of Cost Segregation Terms




Accelerated Depreciation: A method of calculating depreciation in which a greater amount of depreciation expense is recorded in the earlier years of an asset's useful life than in later years.

Depreciation: The portion of the cost of a capital asset representing the expiration in the useful life of the capital asset attributable to wear and tear, deterioration, action of the physical elements, inadequacy, and obsolescence which is charged off during a particular period. In accounting for depreciation, the cost of a capital asset, less any salvage value, is spread over the estimated useful life of such an asset.

Depreciation Expense: The portion of an asset's cost allocated to the current accounting period.

Engineering Based: Means reviewed by one or more licensed engineers as part of the process.

Form 3115: This is an IRS form that when filed allows a building owner to adjust their income so they can claim deductions as if cost segregation had been applied in year one. It eliminates the need to file amended tax returns.

Present Value: Present value states that an amount of money today is worth more than the same amount in the future because money can earn a return if invested. By deferring state and federal income taxes, the taxpayer is effectively receiving an interest free loan from the government.

Section 1245 Property: This refers to tangible or personal property as opposed to real property.

Section 1250 Property: This refers to real property as opposed to personal property.

Straight Line Depreciation: A method of calculating depreciation expense that allocates an asset's purchase cost evenly over the asset's expected useful life.