Cost Segregation in 2 Pages:
Everything You Need to Know
A quick reference for property owners and their CPAs. What cost segregation is, who it's for, and how much it saves.
What Is Cost Segregation
Reclassify components. Accelerate deductions.
Standard depreciation spreads your deduction over 27.5 years (residential) or 39 years (commercial). A cost segregation study identifies building components — electrical, plumbing, finishes, landscaping, paving — that qualify for 5, 7, or 15-year recovery periods. With 100% bonus depreciation restored for 2025+, most of that reclassified amount is deductible in Year 1.
Estimated Year 1 Tax Savings · $500K Rental Property
$37,000 – $52,000
At 37% federal rate · 100% bonus depreciation (OBBBA, 2025+)
Estimated Savings by Property Type
$500K property (after 20% land exclusion = $400K depreciable basis)
| Property Type | Reclassified % | Year 1 Deduction | Tax Savings |
|---|---|---|---|
| Single-Family Rental | 18–25% | $72K–$100K | $27K–$37K |
| Short-Term Rental | 25–35% | $100K–$140K | $37K–$52K |
| Multifamily | 20–30% | $80K–$120K | $30K–$44K |
| Office | 22–32% | $88K–$128K | $33K–$47K |
| Retail / Restaurant | 22–35% | $88K–$140K | $33K–$52K |
| Industrial | 15–28% | $60K–$112K | $22K–$41K |
Based on $400K depreciable basis (20% land), 37% bracket, 100% bonus depreciation. Actual results vary by property age, quality, and location.
Why Your CPA Didn't Bring This Up
It's not a blind spot — it's a separate discipline
• Cost segregation requires a separate engineering-based analysis — it's not something CPAs produce in-house.
• It's almost always client-initiated. Your CPA works with the study once you order it — they file the depreciation on your return.
• Ask your CPA: "Have you worked with a cost seg report before?" Most have — they just don't initiate it.