Property Management Blog

The Effect Of Cost Segregation On Recapture

The Effect Of Cost Segregation On Recapture

While there's a relationship between cost segregation and recapture, the cause and effect aren't as closely linked as you might think. For example, if you're not planning to hold on to your property for at least 3-5 years, accelerated depreciation may be of little benefit. That's because if you're in a high tax bracket and opt for accelerated depreciation, you can expect to face high ordinary income tax rates when it comes time to pay recapture taxes (because those taxes are based on ordinary income).  

Key Points

  • Recapture is a tax at the sale of a depreciation building 
  • Don’t cost segregate if you are not holding for three to five years
  • When holding, invest in appreciating assets 
  • Recapture should not be a concern if holding the property for the recommended time

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