Cost Segregation Strategies for Developers 2025
Real estate development is capital-intensive, and cash flow is king. One of the most overlooked strategies developers can use to free up cash quickly is cost segregation. By accelerating depreciation, you can write off more in year one, reduce tax liability, and keep more money working in your projects.
How Cost Segregation Works
- Standard depreciation: 27.5 years for residential property, 39 years for commercial.
- Cost segregation: Breaks down property into components (fixtures, flooring, lighting, HVAC) that depreciate over 5, 7, or 15 years.
- 2025 bonus depreciation: With 100% bonus depreciation reinstated, those deductions can be taken immediately.
Example
A $5 million apartment project might allocate $1.5 million to shorter-life assets.
- Under traditional rules: That $1.5M is spread across decades.
- With cost segregation + bonus depreciation: The full $1.5M can be deducted in year one.
That can generate $500K+ in tax savings — freeing up cash for the next project.
Who Should Use It
- Developers holding assets for several years
- Investors acquiring new properties in 2025
- Businesses renovating existing facilities
Caution
If you plan to sell within a few years, depreciation recapture rules apply. Always weigh short-term savings against long-term tax impacts.
The Bottom Line
Cost segregation isn’t just for massive corporations — mid-sized developers and investors can benefit significantly. With the right strategy, you can boost cash flow and reinvest in growth.
Planning a development project in 2025?
At Shahbaz & Associates, we help developers and investors unlock tax savings through cost segregation and other advanced strategies. Let’s explore how you can save six figures or more this year.