The 30-second answer
Cost segregation is usually worth it when the basis is around $200K or more, you are in a meaningful tax bracket, you can use the loss, and you will hold the property at least a few years. At a study cost from $495 and a typical Year-1 deduction in the tens of thousands, the ROI is often 20x or higher. It is usually not worth it on a very small property, for a fully passive investor with no income to offset, or if you plan to sell within 12 to 18 months. Run your numbers in the calculator above.
The four factors that decide it
Whether cost segregation pays off comes down to four things:
- Basis. The bigger the depreciable basis (purchase price minus land, plus improvements), the bigger the reclassified deduction. Above ~$200K it usually pencils; below ~$150K with few improvements it often does not.
- Tax bracket. A deduction is worth your marginal rate. At 37% federal (plus any state), every $100K reclassified is worth ~$37K+. At a low bracket, the same deduction is worth less.
- Can you use the loss? This is the one people miss. If you materially participate in a short-term rental, or qualify as a real estate professional, or have passive income to offset, the accelerated loss is usable now. If not, it carries forward (still valuable, just deferred).
- Holding period. Accelerated depreciation is partly recaptured at sale (25% federal on the building portion). Holding 3+ years, and ideally pairing with a 1031 exchange, preserves the benefit. A 12-month flip usually does not justify a study.
When cost segregation is usually worth it
- Purchase price above ~$200K (residential) with a real depreciable basis.
- You are in a 32% to 37%+ bracket, or a high-tax state.
- You materially participate in an STR, qualify as a REP, or have passive income to absorb the loss.
- You will hold 3+ years.
- The property is furnished or improvement-heavy (STR, renovated rental, commercial), which means more short-life components.
When it usually is not
- Property under ~$150K with minimal improvements.
- A fully passive investor with no passive income and no participation, where the loss just carries forward unused for the foreseeable future.
- You plan to sell within 12 to 18 months.
Worth it for your property type?
We have property-specific breakdowns: long-term rentals, Airbnb / short-term rentals. For commercial, the math almost always works above $500K. The fastest way to know is to run your numbers, then read a real report example to see what you would get.