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Cost segregation studies
Accelerate depreciation on your investment property, with the study and the tax return handled by people who talk to each other.
What a cost segregation study does
When you buy or build a property, the building is normally depreciated over 27.5 years for residential rentals or 39 years for commercial property. But a building isn’t one asset. Flooring, cabinetry, appliances, certain electrical and plumbing, parking areas, landscaping, and fencing often qualify for much shorter recovery periods of 5, 7, or 15 years.
A cost segregation study identifies those components and assigns each one its proper recovery period. Moving cost into shorter lives means larger depreciation deductions in the early years of ownership, when that cash is often most useful.
Why it matters more now
The 2025 tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Components with recovery periods of 20 years or less can qualify, so a study can move a meaningful share of a property’s cost into the first year.
How we handle it
Properties up to about $1.2 million
For properties with a purchase price up to about $1.2 million, including land, we prepare the study in-house using specialized cost segregation software, so smaller properties can benefit without the cost of a full engineering study.
Larger properties
For properties above about $1.2 million, we work with an independent firm that specializes in engineering-based studies. We coordinate the process with them and handle everything on the tax side.
Either way, we handle the tax side
- Reviewing whether a study makes sense before you spend money on one
- Applying the results on your return, including bonus depreciation
- Catching up missed depreciation on property you already own through an accounting method change (Form 3115), claimed in the current year without amending prior returns
- Planning around the effects of a sale down the road
Is it right for your property?
A study tends to make the most sense when you own the property for several years, have meaningful income to offset, and the building has substantial interior and site improvements. Some things to weigh:
- Rental losses may be limited by the passive activity rules, unless you qualify as a real estate professional or your short-term rental qualifies for different treatment.
- Depreciation you claim can be partly taxed when you sell, a factor we plan for upfront.
- A property you’ve owned for years can still benefit, since depreciation you missed in prior years can be caught up.
We’ll tell you honestly if a study isn’t worth it for your situation.
For a deeper look, read our article Unlocking Tax Savings with Cost Segregation.
This page is general information, not advice for your specific situation. Results depend on the property and your tax circumstances.
Frequently asked questions
Can I do a cost segregation study on a property I bought years ago?
Yes. Through an accounting method change (Form 3115), the depreciation you could have claimed in earlier years can generally be caught up in the current year, without amending prior returns.
How much does a cost segregation study cost?
For properties up to about $1.2 million, including land, we prepare the study in-house and quote a fixed fee. Larger properties use an engineering-based study, priced by the engineering firm. Either way, we tell you upfront whether the expected tax benefit justifies the cost.
What happens when I sell the property?
Some of the depreciation you claimed may be taxed when you sell, a rule known as depreciation recapture. We factor that into the decision upfront, along with how long you plan to hold the property.
Is cost segregation recognized by the IRS?
Yes. Cost segregation is a well-established practice, and the IRS publishes an Audit Techniques Guide describing what it expects from a quality study. Proper documentation matters, which is why the method we use depends on the size of the property.