A cost segregation study reclassifies building components into shorter depreciation categories — 5-year and 15-year property — instead of 27.5 years. Combined with bonus depreciation, this can generate massive first-year tax deductions.
Typical study reclassifies building components into shorter-lived categories.
Carpeting, appliances, cabinetry, fixtures, decorative lighting
Landscaping, parking lots, sidewalks, land improvements
100% (2022), 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027+)
Additional First-Year Tax Savings
$18,508
vs. straight-line depreciation
What does this mean?
The first-year tax savings could significantly offset the cost of a study. Most cost segregation studies for this range pay for themselves in the first year.
A cost segregation study is an engineering-based analysis that reclassifies building components into shorter depreciation categories. Instead of depreciating everything over 27.5 years, certain components qualify as 5-year or 15-year property — accelerating your tax deductions.
Combined with bonus depreciation, eligible components can be deducted in the first year. This creates massive paper losses that offset rental income and potentially other income for real estate professionals.
⚡ 5-Year Property
Carpeting, appliances, cabinetry, decorative fixtures, specialized electrical, security systems.
🏗️ 15-Year Property
Landscaping, parking lots, sidewalks, fencing, site utilities, land improvements.
🏢 Building
Structural components, roofing, HVAC, plumbing, electrical — depreciated over 27.5 years straight-line.
⚠️ Bonus Depreciation Phase-Down
Bonus depreciation was 100% for property placed in service before January 1, 2023. It decreases by 20% per year: 80% (2023), 60% (2024), 40% (2025), 20% (2026), and 0% starting in 2027 — unless Congress extends it.
Who should get a cost seg study? Generally properties worth $500K+ where you plan to hold for several years. The study typically costs $5K–$15K and often pays for itself many times over in tax savings. See our Depreciation Calculator for standard straight-line depreciation and our 1031 Exchange Calculator to defer depreciation recapture.
Keep running the numbers
Accelerated depreciation changes your year-one returns. See the full impact.
Calculate annual depreciation deductions for residential and commercial properties.
Calculate timelines and reinvestment requirements for a tax-deferred 1031 exchange.
Calculate Net Operating Income — the foundation of commercial real estate valuation.
Want to analyze a full deal with comps, rehab estimates, and flip projections?
Download Frontflip