Estimate first-year tax savings from a cost segregation study.
First-year tax savings
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Accelerated depreciation
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Reclassified amount
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Your breakdown
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Pulling depreciation forward instead of waiting decades
Buy a commercial building and the IRS makes you depreciate it over 39 years. A residential rental stretches over 27.5 years. That is a long time to wait for a deduction. A cost segregation study breaks the building into its parts and reclassifies the short-lived components, things like carpet, cabinetry, specialty wiring, landscaping, and parking surfaces, into 5, 7, and 15-year property. Those shorter lives let you take much larger deductions in the early years, and bonus depreciation can accelerate them further still. This tool estimates the first-year tax savings that shift creates.
The estimate is intentionally simple. It takes your building cost basis, applies the percentage you expect a study to reclassify into short-life property, applies the bonus depreciation rate to that reclassified amount, and multiplies by your marginal tax rate. It is a planning sketch, not a full depreciation schedule. It does not model each MACRS class year by year or the slower straight-line catch-up on the remaining building shell. Think of the result as the size of the first-year prize, the number that tells you whether a study is worth commissioning at all.
A note on the bonus rate, because it keeps changing
The calculator applies a 40% bonus depreciation rate by default. Bonus depreciation under Section 168(k) was scheduled to phase down from 100% in steps, and 40% reflects one point in that schedule. Be aware this figure has been a moving target. Legislation in 2025 revisited the phase-down, so the rate that applies to property placed in service in your specific year may differ. Confirm the current bonus percentage for your placed-in-service date with your CPA or the latest IRS guidance, and set the bonus field to that number before you trust the output. The example below uses 40% only to match the tool's default.
A $1 million building, 25% reclassified
Picture a $1,000,000 building cost basis. A study reclassifies 25% of it, or $250,000, into 5, 7, and 15-year property. Applying the 40% bonus rate to that $250,000 produces $100,000 of accelerated depreciation in year one. At a 32% marginal rate, that deduction is worth $32,000 in first-year tax savings. A study typically costs somewhere between $5,000 and $15,000, so the year-one savings here cover the study several times over.
The catch most investors forget: recapture
Accelerated depreciation is a timing benefit, not free money. When you sell the property, the depreciation you took gets recaptured and taxed. Personal-property recapture under Section 1245 is taxed as ordinary income, and real-property depreciation is subject to the unrecaptured Section 1250 rate of up to 25%. So the real win is the time value of money: you get a large deduction now and pay some of it back later, and a dollar saved today is worth more than a dollar paid years from now. The strategy pays off best for investors who plan to hold, who have passive income or real estate professional status to absorb the loss, and who can reinvest the early tax savings. A 1031 exchange at sale can defer the recapture entirely, which is why the two strategies often travel together.
Who this is built for
Owners of properties valued around $500,000 and up, where the dollar value of accelerated depreciation comfortably clears the study fee. It is most powerful for buildings with a high share of short-life components, think restaurants, medical offices, hotels, and apartment complexes, and least useful for a bare-bones warehouse that is mostly long-life shell. A practical tip: passive activity loss rules can trap the deduction if you are a passive investor without enough passive income to offset, so check whether you or a spouse can claim real estate professional status before counting on a full first-year benefit. When the numbers are large, a quote-stage estimate like this is exactly the right tool to decide whether to pay for the full engineering study.
Can I do a cost segregation study on a property I bought years ago?
Yes. You can apply a study to a property already in service and claim the missed accelerated depreciation in the current year through a Form 3115 change in accounting method, without amending old returns. This catch-up deduction, called a section 481(a) adjustment, can be substantial and is one of the most overlooked moves for long-time owners.
Does land qualify for cost segregation?
No. Land is never depreciable, so the first step in any study is carving the land value out of your purchase price. Only the building and its components depreciate. Set your building cost basis in this tool to the price you paid minus the land value, which you can usually pull from the county assessor's allocation or an appraisal.