What’s the secret of people who have grown massive fortunes investing in real estate? For one thing, they know where to buy. But there’s more to it than that. They also understand the tax rules that can help them recover their investments sooner.
If you’re a Utah investor, consider a cost segregation study to maximize your investment return. Utah was the second-fastest-growing state in 2024, at 1.69%. The Gardner Institute at the University of Utah recently reported that Utah remains the third-fastest-growing state, adding almost 58,000 new residents in one year.
This population growth creates demand for apartment buildings, warehouses, retail shopping centers, medical office buildings, and mixed-use projects.
Despite this growth, many Utah property owners continue depreciating their buildings on a standard 39-year commercial depreciation schedule or 27.5-year residential schedule. A cost segregation study can accelerate the recovery of certain building costs. That can increase tax deductions and improve cash flow.
The Opportunity: How Utah Investors Can Save Money by Acting Now
When you purchase a $5 million commercial building, you typically depreciate the building cost, excluding land, over 39 years under IRS rules.
However, not every component of your building lasts 39 years. Carpets, light fixtures, cabinets, paint, landscaping, and custom electrical work will likely wear out long before the building itself.
A cost segregation study uses an engineering-based analysis to identify building components that may qualify for shorter recovery periods, generally 5, 7, or 15 years. Some components may also qualify for 100% bonus depreciation if you acquired the qualifying property after January 19, 2025.
For example, a cost segregation study on a $5 million commercial building might reclassify 15% to 30% of the building’s value into shorter recovery periods.
Assume the study reclassifies 20%, or $1 million. With 100% bonus depreciation available and a 37% federal tax rate, the first-year tax savings could reach approximately $370,000.
You could reinvest that money, use it to pay down your loan, or take distributions.
Why Utah Properties Stand to Benefit
Higher Property Values Can Mean More Depreciation Potential
Utah’s economic growth has contributed to rising real estate prices in the Salt Lake City, Provo-Orem, Ogden-Clearfield, and St. George metro areas.
A higher property basis can create greater potential for accelerated depreciation. A cost segregation study may identify a larger depreciable basis than you initially recognized, creating additional tax benefits.
New Construction Offers Ideal Cost Segregation Opportunities
Utah’s economic growth continues to fuel commercial and residential construction. New construction can offer particularly strong opportunities for cost segregation.
Because the project documentation is readily available, engineers can use construction documents, contractor bids, and detailed cost data to categorize individual building components.
Many Utah Property Types Are Well Suited to Cost Segregation
Utah has a wide range of commercial real estate, and many property types can produce strong cost segregation results.
Industrial and warehouse properties: Warehouses and distribution centers often include site improvements, specialized lighting, electrical systems, and equipment that may qualify for shorter recovery periods.
Multifamily properties: Multifamily buildings often contain carpeting, lighting, cabinets, flooring, doors, countertops, appliances, and finishes. Many of these components may qualify as 5- or 7-year property.
Retail and mixed-use properties: Retail stores, restaurants, and shopping centers may contain specialized finishes, lighting, wiring, flooring, landscaping, parking lot improvements, and signage that qualify for shorter recovery periods.
Medical offices: Medical office buildings may include specialized equipment, lighting, electrical systems, and wiring that qualify for accelerated depreciation.
Past Acquisitions May Also Qualify
Already own property in Utah? A look-back cost segregation study may reveal additional depreciation opportunities from prior years.
If the study identifies catch-up depreciation, you may be able to claim it on your current-year return without amending previous returns. Look-back studies apply the depreciation rules that were in effect when you originally placed the property in service.
Talk with your CPA about the rules that apply to your specific situation.
Utah Property Owner’s Checklist: Is a Cost Segregation Study Right for You?
Before engaging a cost segregation company, consider the following factors:
Purchase price excluding land: Properties valued at $500,000 or more often generate enough potential tax benefit to justify a study, although results vary.
Property type: Commercial, multifamily, industrial, medical office, and retail properties can qualify.
Acquisition or construction date: Properties placed in service after January 19, 2025, may qualify for 100% bonus depreciation on eligible reclassified components. Older properties may still benefit from a look-back study.
Depreciable basis vs. land: You cannot depreciate land, so the allocation between land and building value matters.
Tax situation: Your ability to use deductions affects the value of the study. Discuss passive activity limitations, timing rules, and other relevant tax considerations with your CPA.
Recent renovations: Tenant improvements, HVAC upgrades, façade work, and other renovations may contain components that qualify for shorter recovery periods.
Choosing the Right Cost Segregation Provider
The IRS hasn’t established formal requirements for who can prepare a cost segregation study, so quality can vary considerably. The IRS Audit Techniques Guide for Cost Segregation explains what examiners generally look for when reviewing these studies.
Look for a provider that uses qualified engineering professionals and clearly connects reclassified costs to construction data. The provider should also work with your CPA throughout the process.
ASCSP credentials can provide another useful quality indicator. You should also look for transparent fees rather than pricing contingent on the size of your deduction.
For more information about depreciation mechanics, IRS Publication 946, How to Depreciate Property, provides a foundational reference.
Request a Complimentary Benefit Analysis
If you own commercial or multifamily property in Utah, your building may contain substantial accelerated depreciation opportunities. That applies whether you recently closed on the property or have owned it for years.
Request a Complimentary Benefit Analysis today. We’ll review your property details and estimate your potential reclassification and first-year tax savings. We’ll also show you what a cost segregation study could mean for your cash flow before you spend a dime.
Then, take the numbers to your CPA and make the decision together.
Frequently Asked Questions
Is a cost segregation study only for newly purchased properties in Utah?
No. Newly acquired properties may qualify under current bonus depreciation rules. Properties acquired in prior years may also benefit from a look-back study and Form 3115.
Consult your CPA about the rates, rules, and timing that apply to your situation.
How much does a cost segregation study typically cost?
Costs vary based on property size, type, and complexity. Studies often range from $3,000 to $10,000 or more.
Compare the study fee with the potential tax benefit. Look for providers that offer transparent pricing without contingent fees.
Will a cost segregation study trigger an IRS audit?
A properly prepared cost segregation study doesn’t inherently trigger an IRS audit.
Strong documentation can support your tax position if questions arise. That documentation should connect reclassified costs to construction documents, cost data, and other supporting evidence.
Discuss your specific circumstances with your CPA.
Can I use a cost segregation calculator to estimate savings before committing?
Yes. A calculator can provide a preliminary estimate based on purchase price, property type, acquisition date, and typical reclassification ranges.
However, actual results require an analysis of your property’s specific components and construction data.
Does cost segregation work for Utah properties in smaller markets like St. George or Logan?
Absolutely. Cost segregation depends on the property’s components and depreciable basis, not its location.
A qualifying property in St. George or Logan can benefit just as a property in Salt Lake City can. The building’s cost breakdown matters more than its ZIP code.
