Cost Segregation ROI: Three Worked Examples, Fee to Tax Saved

Cost segregation ROI = (Year 1 tax saved − study fee) ÷ study fee. On a $500K single-family rental, a study at our typical 16% reclassification moves $64,000 into 5-, 7- and 15-year property. With 100% bonus depreciation that is $64,000 deducted in Year 1, or $23,680 of tax at a 37% rate, against a study fee of $895: about 25x. A furnished $750K STR and a $2M office are worked below. Every figure on this page assumes you can use the loss this year, and the section on passive losses explains when you cannot.

We also have a broader guide covering minimum property values, expected returns, and when cost segregation doesn’t make sense: is cost segregation worth it?

The ROI Formula

ROI = (Year 1 tax saved − study fee) ÷ study fee

The tax saved comes from moving part of your depreciable basis off the 27.5-year (residential) or 39-year (commercial) schedule into 5-, 7- and 15-year property. With 100% bonus depreciation, available for property acquired after January 19, 2025, those components are deducted in full in the year the property is placed in service.

The fee is known before you order. Ours is set by property type and purchase price and published on our pricing page, and the examples below use the fee each property would actually be charged.

Three simplifications apply to every example. Land is taken at the site’s standard assumption: 20% for residential, 25% for commercial. The reclassification rate is the typical figure we publish for that property type; your own property may land higher or lower. The tax saved is the bonus deduction times the bracket, before the small straight-line deduction those components would have produced anyway.

our engineering methodology →

Example 1: The $500K Single-Family Rental

• Purchase price: $500,000
• Land allocation (20%): $100,000
• Depreciable basis: $400,000
• Reclassification rate (typical single-family): 16%
• Reclassified into 5-, 7- and 15-year property: $64,000
• Year 1 bonus deduction (100%): $64,000
• Year 1 tax saved at 37%: $23,680
• Study fee: $895
• ROI: 25x

The bracket matters less than people expect. At 32% the same deduction saves $20,480, about 21x. At 24% it saves $15,360, still about 16x.

Example 2: The $750K Furnished Short-Term Rental

Short-term rentals reclassify more than long-term rentals for two reasons. They carry far more personal property: furniture, electronics, kitchen equipment and hospitality-grade fixtures. They also tend to have land improvements such as hot tubs, outdoor kitchens and paved parking.

• Purchase price: $750,000
• Land allocation (20%): $150,000
• Depreciable basis: $600,000
• Reclassification rate (typical furnished STR): 26%
• Reclassified into 5-, 7- and 15-year property: $156,000
• Year 1 bonus deduction (100%): $156,000
• Year 1 tax saved at 37%: $57,720
• Study fee: $995
• ROI: 57x

For comparison, straight-line depreciation on the same basis is $21,818 a year. With the study, Year 1 depreciation is the $156,000 bonus plus straight-line on the remaining $444,000, roughly 8 times the no-study figure.

STRs are also where the loss is most often usable. If the average guest stay is 7 days or less and you materially participate, the activity is not a passive rental activity, and the loss can offset W-2 or business income. See material participation for STR owners.

Example 3: The $2M Commercial Office Building

Commercial buildings depreciate over 39 years, so without a study even more of the deduction is pushed decades out.

• Purchase price: $2,000,000
• Land allocation (25%): $500,000
• Depreciable basis: $1,500,000
• Reclassification rate (typical office): 19%
• Reclassified into 5-, 7- and 15-year property: $285,000
• Year 1 bonus deduction (100%): $285,000
• Year 1 tax saved at 37%: $105,450
• Study fee: $3,295
• ROI: 31x

The fee rises with the property, but far more slowly than the deduction, which is why the multiple stays high as properties get larger.

Want to see what the underlying engineering looks like? You can download a sample cost segregation report for each of the property types above. It is the same format your CPA will use to file your current-year return or a Form 3115.

The Catch: Can You Use the Loss This Year?

Every example above assumes the deduction reduces tax this year. Whether it does depends on the passive activity rules, and this is where most ROI pages go quiet.

• Long-term rental, W-2 owner: rental losses are passive. You can use them against passive income from other rentals. The $25,000 allowance for active participants phases out between $100,000 and $150,000 of modified AGI, so most high earners get none of it. Unused losses are suspended and carried forward. They are not lost, and they are released in full when you sell the property in a taxable sale, but the ROI arrives later.
• Short-term rental with material participation: if the average stay is 7 days or less and you materially participate, the loss is non-passive and can offset W-2 income in Year 1.
• Real estate professional (REPS): if you or your spouse qualifies and materially participates, long-term rental losses are non-passive too. See the REPS hour log.

If the loss will be suspended, the study still does its job, because the deductions are banked and the basis is documented. But the Year 1 multiple becomes a later-year multiple. Model it with your CPA before you count on it. The mechanics are in our guide to passive activity loss rules.

The Time Value of Money: Why Acceleration Matters

Skeptics point out that cost segregation doesn’t create new deductions, it moves them forward. That is correct, and it is the point.

Without a study, the $500K rental deducts $14,545 a year for 27.5 years. With one, it also deducts $64,000 in Year 1, worth $23,680 at 37%. That money can be reinvested now. At 8% a year, $23,680 grows to about $110,371 over 20 years. That figure overstates the gain somewhat, because without the study you would still receive those deductions eventually, just decades later. The benefit is the head start, and the head start compounds.

When the ROI Is Lower

• Condos and townhomes: you don’t own the roof, exterior walls or site improvements, so less of the price is reclassifiable. The study still commonly pays for itself, but the multiple is lower.
• Very new construction: a new build with minimal landscaping and builder-grade finishes has less to reclassify than an older property with a finished basement, mature landscaping and upgraded fixtures.
• Smaller properties: a $150K house at the typical 16% reclassification produces a Year 1 deduction of about $19,200. That is worth about $4,608 at a 24% rate, against a fee of $495. That is still a positive return, but modest enough that some owners reasonably decide it isn’t worth the paperwork.
• Losses you can’t use yet: see the section above. A suspended loss defers the return, sometimes until you sell.

When the ROI Is Highest

• Furnished STRs: our typical furnished STR reclassifies 26% of its basis against 16% for a single-family rental, and the loss is more often usable in Year 1.
• Larger properties: reclassification percentages are similar, but the dollars scale. A $1M single-family rental at the typical 16% reclassifies about $128,000, worth about $47,360 at 37%, against a fee of $1,295.
• Equipment-heavy commercial: fitness centers, auto dealerships, retail and other fit-outs carry more 5- and 15-year property than standard office space.
• Long holds: the longer you hold, the longer the head start compounds, and the more of the recapture question a 1031 exchange or a step-up at death can take off the table.

If the ROI math justifies a study, the next decision is which provider. The provider comparison hub lays out methodology and pricing across the major firms.

The Bonus Depreciation Factor

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, restored 100% bonus depreciation permanently for property acquired after January 19, 2025. The full reclassified amount is deductible in the year the property is placed in service, so there is no remaining balance to spread over later years.

The date matters for older purchases. Property acquired before January 20, 2025 keeps the rate from the old phase-down schedule: 80% if placed in service in 2023, 60% in 2024, and 40% in 2025. A lookback study on a property you already own uses the rate for the year it was placed in service. See is bonus depreciation permanent? for the full timeline.

What About Depreciation Recapture?

When you sell, some of the depreciation comes back as taxable income, and the rate depends on the kind of property:

• 5- and 7-year components (appliances, furniture, carpet, specialty electrical) are §1245 property. Depreciation taken on them is recaptured as ordinary income, at your full rate. The usual “deduct at 37%, recapture at 25%” pitch is wrong for these components.
• 15-year land improvements are §1250 property. Bonus taken on them is recaptured as ordinary income to the extent it exceeded straight-line. The remaining depreciation is taxed at up to 25%.
• The building itself (27.5- or 39-year) is taxed at up to 25% on its depreciation, with or without a study.

Why the net is still usually positive:

• Recapture follows the sale price, not the deduction. It only applies to gain allocable to those components. Ten-year-old carpet and furniture are usually worth little, and a component-level allocation at sale can reflect that.
• Time value. Tax saved today and reinvested for 10 to 20 years usually outweighs tax paid on a sale that far out.
• 1031 exchanges can defer recapture, as long as the replacement property carries enough like property to avoid triggering §1245 recapture.
• Step-up in basis: property held until death passes to heirs at fair market value, and the recapture disappears.

Your CPA should model recapture alongside the Year 1 benefit, especially if you expect to sell within a few years. See cost segregation and depreciation recapture.