Handout
Cost segregation, on one page
What it is, what it produces, what it costs, and what it does not do.
The idea
Your building sits on your depreciation schedule as a single asset recovering over 39 years for commercial property or 27.5 for residential rental. Physically it is hundreds of assets with different lives. An engineering-based cost segregation study identifies each component, prices it, and puts it on the recovery period the Code actually assigns it — typically 5, 7 or 15 years for a meaningful share of the basis.
Why it is worth more now than it was two years ago
Bonus depreciation under section 168(k) is 100% and permanent for qualified property acquired and placed in service after 19 January 2025. Bonus reaches property with a recovery period of 20 years or less — which a building is not, but which the 5-year finishes and 15-year parking lot inside it are. The study is what creates the eligible basis.
Typical reclassification by property type
| Property type | Basis reclassified |
|---|---|
| Restaurant | 26 – 42% |
| Grocery / c-store | 26 – 40% |
| Hotel | 24 – 38% |
| Medical / dental | 24 – 36% |
| Self-storage | 24 – 36% |
| Retail center | 20 – 32% |
| Short-term rental | 20 – 32% |
| Apartment / multifamily | 20 – 30% |
| Office | 16 – 26% |
| Single-family rental | 14 – 24% |
| Warehouse / industrial | 12 – 24% |
An example
A $3,000,000 commercial building generates about $64,000 of first-year depreciation without a study. With a study reclassifying 25% and 100% bonus applying, the first-year deduction is roughly $806,000 — about $260,000 of tax deferred into year one at a 35% combined rate.
If you have owned it for years
You do not amend anything. A look-back study recomputes depreciation from the placed-in-service date and brings the entire difference forward as a section 481(a) catch-up on your current return via Form 3115. The only hard limit is that you must still own the property.
What it does not do
- It does not create deductions you were not entitled to — it accelerates them.
- Section 1245 components recapture as ordinary income on a taxable sale; the building portion produces unrecaptured section 1250 gain capped at 25%.
- It does not help this year if passive activity rules suspend the loss. That depends on material participation, real estate professional status or other passive income.
- It is not a substitute for advice. Nothing here accounts for your entity, your state or your plans.
What it costs
Residential studies from $1,850, commercial from $4,900, Form 3115 look-backs from $1,200, portfolios quoted individually. Fixed fees, never a percentage of savings. The feasibility review that tells you the expected benefit is free.
No-cost feasibility review
Find out what your building is hiding.
A feasibility review is free and takes about twenty minutes. Bring the closing statement and the depreciation schedule; we will tell you plainly whether a study pays for itself.