The concept of cost segregation began in the 1960s, when taxpayers argued specific components of real estate had a shorter life than the depreciation tables allowed (39 years for commercial property and 27.5 years for residential real estate). After decades of legal cases, the IRS provided rules and safe harbors in 1996 and 2002. Taxpayers now can use cost segregation and remain compliant with IRS regulations. The real question now is: Does a cost segregation study really reduce a taxpayer’s liability? And if so, by how much?
Lessons Learned from the Tax Court: The Root of the Issue
Matt Metras, EA
When is a business really a business? As Supreme Court Justice Potter Stewart said in 1964, “I know it when I see it.” The US Tax Court, however, maintains a slightly less subjective standard. The Roots were pretty sure they were running a bona fide business; the IRS, however, didn’t share the sentiment. And since we’re reading about them in a segment called “Lessons Learned,” one should assume it did not go the way the Roots would have liked.
