Florida has a decent mix of multifamily units, short-term rentals, industrial properties, and office buildings, all of which are great candidates for cost segregation.
Additionally, since it does not have state income taxes for pass-throughs and individuals, the real battle for tax planning is at the Federal level. So, doing cost segregation in Florida is essential, as it is the most impactful strategy real estate investors can use to reduce or eliminate federal taxes.
This post explores how cost segregation works in Florida and outlines how to find a reliable provider to help you execute the strategy.
What is Cost Segregation?
Cost segregation is a tax strategy that allows you to reclassify building components and subject them to shorter depreciation schedules, resulting in larger deductions in the initial years of property ownership.
Many investors leave money on the table by defaulting to the standard 27.5- (residential) or 39-year (commercial) schedule for their property’s entire depreciable basis.
However, with cost segregation, you can “segregate” property components as follows:
- 27.5- or 39-year life: Real Property (the core building structure)
- 15-year life: Site Improvements (driveway, fencing, pools, etc.)
- 5/7-year life: Personal property (appliances, furniture, carpeting, etc.)
You’ll then subject the shorter-lived assets to depreciation schedules consistent with their actual useful lives, significantly accelerating your tax deductions.
Tax Benefits of Cost Segregation for Florida Property Owners
You should consider cost segregation in Florida because it has the following benefits:
- Accelerated depreciation: The primary benefit of cost segregation is that it enables you to accelerate the depreciation of a significant portion of your property, thereby boosting near-term tax savings. You’ll get the deductions you’d have gotten anyway, but a lot sooner.
- The power of the time value of money: Getting the deductions sooner and reinvesting them means you’ll have a longer runway to compound growth. You’ll achieve better portfolio returns because a dollar reinvested today yields significantly more than a dollar reinvested 27 or 39 years later.
- Eligible assets qualify for bonus depreciation: To be eligible for bonus depreciation, an asset must have a recovery period of 20 years or less. Cost segregation helps you identify and allocate costs to 5- and 7-year property components, allowing you to use bonus depreciation.
Bonus depreciation is valuable because it allows you to write off up to 100% of the cost of an eligible asset in its first year.
The rate depends on the year the property was placed in service:
- 2018 – 2022: 100%
- 2023: 80%
- 2024: 60%
- January 1 – 19, 2025: 40%
- January 20, 2025 onwards: 100% (as per the One Big Beautiful Bill Act)
For instance, if you perform cost segregation on a property placed in service in September 2025 and determine that $171,000 of the cost is attributable to shorter-lived assets, you can write off the entire $171,000 in year one, rather than allocating the cost over 5, 7, or 15 years.
Properties That Qualify for Cost Segregation in Florida
Properties with significant personal property and site/land improvements qualify for cost segregation.
Generally, the following types of properties in Florida are eligible:
- Retail centers
- Office buildings
- Hotels and resorts
- Short-term rentals
- Warehouses with elaborate fixtures
- Multi-family units and apartment complexes
That said, if you hold a property with a cost basis exceeding $300,000 (excluding land), we believe you’ll benefit from doing cost segregation in Florida.
The Cost Segregation Study Process in Florida
The cost segregation study process typically depends on the provider you commission and their specific methodology.
The IRS does not mandate a particular methodology. However, in its Cost Segregation Audit Technique Guide, it states that a study performed by an engineer is more reliable than one done by someone without a construction or engineering background.
That’s why at Seneca Cost Segregation, we only do engineering-based cost segregation studies.
Here’s how the process typically unfolds:
Feasibility Analysis and Documentation Gathering
Do you want an estimate of your potential tax savings to determine if cost segregation is worth it for you? You can request a complimentary preliminary analysis of your property, and we’ll provide a free proposal detailing how cost segregation will impact your tax liability.
When you are ready to proceed with an actual study, we’ll request that you provide relevant documents to facilitate the process. We typically need ownership, purchase, construction, and renovation documents.
Property Inspection and Engineering Analysis
Depending on the property and timing, we’ll either conduct an on-site or virtual inspection.
Our engineers will identify and catalog every component of your property, from land improvements to electrical fittings. Using industry best practices and engineering costing techniques, we’ll reclassify these assets into the appropriate categories and allocate costs to them.
Report Generation and Implementation Support
We’ll compile a report detailing our findings and describing the methodologies used to arrive at the asset classifications and cost allocations.
Your CPA can use the report to prepare your taxes.
If you and your CPA need help with implementing our findings, we’ll be available post-study to provide the technical support you need.
Additionally, while our studies are unlikely to trigger an audit, every study we conduct is backed by our Seneca AuditDefense guarantee.
Ready to implement cost segregation in Florida with the help of a team that will be with you for the long haul?
Request a free proposal today to initiate the feasibility stage of the process and tap into the expertise of our engineers, who have completed over 10,200 studies nationwide.
Cost Segregation Cost vs. ROI in Florida
You may be wondering whether cost segregation is worthwhile for the properties you currently own.
Generally, a cost segregation study costs about a couple of grand. For a study to be worthwhile, the potential tax savings must significantly outweigh this investment.
Luckily, you can run the numbers independently before committing to a study. Let’s use an example with cost segregation and bonus depreciation to illustrate the process.
Assume you put a residential property with the following details in service in 2024:
- Purchase: $1,000,000
- Improvements made: $50,000
- Land value: $150,000
- Cost basis: $900,000 (purchase + improvements – land value)
If you were to use standard straight-line depreciation, you’d allocate the entire $900,000 linearly over 27.5 years, giving you a per-year depreciation of $32,727.27.
The treatment is different under cost segregation. For instance, assume we conducted a study and found that 12% of the cost basis is personal property, 16% is site improvements, and 72% is real property.
- 12% of $900,000 = $108,000
- 16% of $900,000 = $144,000
- 72% of $900,000 = $648,000
Because you placed the property in service in 2024, it qualifies for 60% bonus depreciation as we discussed earlier, and the treatment is as follows:
- $108,000 x 60% = $64,800. The remaining 40% comes in over the next 5 years.
- $144,000 x 60% = $86,400. The remaining 40% comes in over the next 15 years.
- Real Property / 27.5 or 39 = $648,000 / 27.5 = $23,563.64 every year until Year 28
The total first-year deduction = $64,800 + $86,400 + $23,563.64 = $174,763.64
Therefore, the Additional First Year Depreciation Deduction = $174,763.64 – $32,727.27 = $142,036.37
You’ll then get a tax deduction of $142,036.37 instead of $32,727.27. At a 37% federal tax rate, this nets you a check from the IRS for $52,553.46.
That’s quite the return on investment for a couple of grand.
How much tax can you potentially save on the property you currently own? You don’t have to guess. Use our free cost segregation calculator to get a reliable estimate.
How to Choose the Best Cost Segregation Provider in Florida
The IRS approves of cost segregation but frequently scrutinizes reports to prevent abuse. As such, you want to work only with a top-tier cost segregation company that can provide highly defensible studies that can withstand the highest levels of IRS scrutiny.
Here are two essential factors you must not compromise on when looking for a provider:
- Engineering-based methodology: As we stated earlier, the IRS places more trust in engineering-based studies. Select a firm with an in-house engineering team with a verifiable record of producing quality studies.
- Audit protection for peace of mind: While a good cost segregation report will have audit-readiness baked in, you want the firm to provide an explicit audit defense guarantee. Specifically, they should be available to help you defend the report should the IRS question it.
Frequently Asked Questions (FAQs)
Let’s now answer some of the common questions we get about cost segregation:
Is Cost Segregation Allowed Under Florida Tax Law?
Florida tax laws do not prohibit cost segregation. That said, the primary value of cost segregation in Florida is offsetting federal taxes.
Are There Florida-Specific Depreciation Rules to Consider?
Yes, Florida decouples from federal bonus depreciation rules.
If you hold a property under a C-corporation, consider working with a CPA experienced in treating bonus depreciation as the state decouples from the incentive.
The decoupling won’t be an issue if you hold a property individually or through a pass-through entity, as the state does not have income taxes at the individual level.
How Long Does a Cost Segregation Study Take in Florida?
The duration depends primarily on the property’s size and complexity, as well as the capacity of the firm you commission for the study.
At Seneca Cost Segregation, we typically complete studies within 2 to 4 weeks.
How Does Florida Property Location Impact Cost Segregation?
Due to Florida’s geographical location, properties in the state often incorporate unique engineering elements, including hurricane-resistant features and enhanced HVAC systems for humidity and climate control.
Additionally, there are significant 15-year assets in the form of coastal amenities. They include sea walls, docks, boat lifts, and other land improvements. Frontloading the depreciation of these assets can yield significant tax savings.
Therefore, for maximum tax savings, it’s best to let an engineering team familiar with the relevant construction standards and specifications handle the cost segregation study.
Conclusion
In an increasingly competitive real estate market like Florida, proactive tax planning isn’t optional. We recommend exploring a cost segregation tax strategy first, as it enables you to convert the properties you already own into immediate cash flow.
At Seneca Cost Segregation, we’ve consistently helped investors like you across the country turn 20-40% of their property costs into immediate tax savings. Many have redeployed the savings into their businesses to grow their portfolios faster.
It all begins with commissioning a cost segregation study from our experienced team of engineers that has completed over 10,200 studies nationwide.
Contact our team today to reduce or eliminate your federal tax liability and unlock new liquidity.
