The 30-second answer
Bonus depreciation is the rate; cost segregation is the base. 100% bonus depreciation under IRC §168(k) (permanently restored by OBBBA for 2025+) applies only to property with a recovery period of 20 years or less. A residential rental's 27.5-yr structure and a commercial property's 39-yr structure are not bonus-eligible. A cost segregation study reclassifies 18–35% of basis into 5/7/15-year MACRS classes per Rev. Proc. 87-56 — that reclassified portion becomes bonus-eligible. Without cost seg, you get 100% bonus on ~5% of the property (typical appliances + carpet). With cost seg, you get 100% bonus on 18–35% of basis. Same bonus depreciation rate; very different deduction amount.
Bonus depreciation alone vs. cost seg + bonus depreciation
| Scenario | $1M residential rental | $2M commercial property |
|---|---|---|
| Bonus depreciation alone (no cost seg) | ||
| Bonus-eligible basis (default short-life) | ~$40K (4% of $800K depreciable basis) | ~$80K (5% of $1.7M depreciable basis) |
| Year-1 deduction | $40,000 | $80,000 |
| Federal tax savings at 37% bracket | $14,800 | $29,600 |
| With cost segregation + bonus depreciation | ||
| Bonus-eligible basis (post-reclassification) | $160,000 (20% reclass on $800K) | $540,000 (30% reclass on $1.7M) |
| Year-1 deduction | $160,000 | $540,000 |
| Federal tax savings at 37% bracket | $59,200 | $199,800 |
| Incremental benefit from cost seg | +$44,400 in Year 1 | +$170,200 in Year 1 |
| Study cost | from $495 | from $1,995 |
Why bonus depreciation alone leaves money on the table
Under §168(k), only property with a recovery period of 20 years or less is eligible for 100% bonus depreciation. Real estate's default classifications under §168(c) put residential rental structures at 27.5 years and commercial structures at 39 years — neither qualifies. The only portions of an unbroken-out building that automatically classify as 5/7/15-year are appliances (refrigerator, dishwasher), some carpet, and limited site improvements. Typical pre-cost-seg short-life share: 3–6% of basis. That's the bonus-eligible amount without a study.
What cost segregation does to expand the bonus-eligible base
A cost segregation study performs an engineering-based reclassification of every component in the property. Decorative finishes, specialty plumbing, HVAC, electrical, FF&E, parking, landscaping, signage, and site work all get evaluated per IRS Pub 5653 (Cost Segregation ATG) and Rev. Proc. 87-56. The study typically reclassifies 18–22% of basis on SFR, 22–28% on multifamily, 25–32% on STR, and 25–35% on commercial properties (medical office often highest, industrial often lowest). That reclassified portion becomes bonus-eligible — same 100% rate, 4–7× larger base.
OBBBA changed the calculation
Before the One Big Beautiful Bill Act (signed July 2025), bonus depreciation was scheduled to phase down: 100% (2022) → 80% (2023) → 60% (2024) → 40% (2025) → 20% (2026) → 0% (2027). OBBBA made 100% bonus depreciation permanent for property placed in service 2025 and later. This means the cost seg + bonus combination is now a long-term planning tool, not a closing-window race. The reclassified portion from a cost seg study is fully deductible Year-1 indefinitely under current law.
When bonus depreciation alone is sufficient
- Property is too small for cost seg to pencil. Under ~$300K depreciable basis, the study cost ($495+) starts eating into the marginal benefit. Most automated studies still pencil; engineer-on-site firms usually don't.
- You only want the appliances and carpet bonus-depreciated. The IRS automatically classifies those — no study needed.
- The property is being held briefly (12–18 months) and recapture math makes cost seg net-negative.
For everything else — properties over $300K, multi-year holds, and any commercial property — combining cost segregation with bonus depreciation produces the largest legal Year-1 deduction available. Run your numbers on the calculator.
Last reviewed: May 2026. Bonus depreciation by state: state conformity hub. Companion: cost segregation vs. 1031 exchange · cost segregation vs. opportunity zones · main comparison hub.