Major Developments in Cost Segregation.

Because of two important cases, 2012 and 2013 proved to be critical years for the practice of cost segregation, which involves breaking down one asset into many smaller components with varying useful lives. The benefits of cost segregation are immediately obvious in the area of depreciation. If a taxpayer takes a large asset (e.g., an apartment building) and breaks it down for depreciation purposes into groups of smaller assets (e.g., the appliances are treated separately from the shell building), many of those smaller assets can be depreciated using shorter useful lives. This results in a substantially reduced tax liability in the near term if the practice is used to its maximum effect. [ABSTRACT FROM AUTHOR]