Every extra dollar you earn is taxed at 38.9% right now — 32.0% federal plus 6.9% state. That's also what each dollar of write-off saves you.
Total you can write off
$800,000
Spread over many years
Sped up into year 1
$160,000
The fast-wearing parts
Your year 1 deduction
$183,273
Goes on this year's taxes
$183,273 of write-off at your 38.9% combined rate. Money that stays in your pocket instead of going to taxes.
Cost segregation front-loads deductions in Year 1 via 100% bonus depreciation, then both methods converge to the same total depreciable basis of $800K by the end of the 27.5-year recovery period.
| Horizon | Straight-Line | With Cost Seg | Extra Deduction | Tax Savings |
|---|---|---|---|---|
| Year 1 | $29,091 | $183,273 | $154,182 | $71,201 |
| Year 2 | $58,182 | $206,545 | $148,364 | $80,243 |
| Year 5 | $145,455 | $276,364 | $130,909 | $107,367 |
| Year 10 | $290,909 | $392,727 | $101,818 | $152,575 |
| Year 15 | $436,364 | $509,091 | $72,727 | $197,782 |
| Year 27.5 (full life) | $800,000 | $800,000 | $0 | $310,800 |
Running totals, not yearly amounts. "Extra Deduction" is how far ahead you are at that point compared to writing the property off slowly. Notice it shrinks over time — the slow method eventually catches up, which is why this is about timing rather than extra money.
This is mostly a loan, not a gift. You take a big deduction now, but when you sell the property the IRS takes part of it back. So the real benefit is having the cash for years in the meantime, not keeping it forever. That's still genuinely valuable — just don't spend it like it's free. Selling through a 1031 exchange can push the bill further out.
On sale, depreciation is recaptured at up to 25% on real property under IRC §1250 (unrecaptured §1250 gain) and at ordinary rates on §1245 personal property, which is where cost seg concentrates basis. A §1031 like-kind exchange can defer both.
This tool is for fun and estimation only. It does not constitute tax advice and may be inaccurate. Always consult a licensed CPA before acting.
Estimates use publicly available 2026 data. Passive activity loss rules, real estate professional status, and material participation may limit your ability to use these losses against other income.
When you buy a rental, the tax rules normally make you spread the write-off over 27 to 39 years. A cost segregation study finds the parts that wear out faster — carpet, appliances, parking, landscaping — so you can deduct them right away instead. This shows what that's worth in year one. You can add more than one property.
Cost segregation is a proven tax strategy that lets real estate investors accelerate depreciation deductions. Instead of writing off a building slowly over 27.5 or 39 years, an engineering study reclassifies parts of the property into shorter-life categories that qualify for 100% bonus depreciation — turning decades of small deductions into one large first-year write-off. It is one of the most powerful tools high earners use to legally reduce taxable income.
1. Buy or improve property
You acquire a rental or commercial building. Normally the building (minus land) depreciates evenly over 27.5 or 39 years.
2. Order a cost segregation study
An engineer reclassifies 20-40% of the building into 5, 7, and 15-year components (fixtures, flooring, landscaping, wiring).
3. Front-load the deductions
Those short-life components qualify for 100% bonus depreciation (restored by OBBBA for property placed in service after Jan 19, 2026), so you deduct them all in Year 1.
4. Offset income & save tax
The large Year-1 deduction reduces taxable income. Pass losses through to offset other income if you materially participate or qualify for REPS/STR rules.