Used to label this property when you carry it over to the Federal Tax worksheet.
Land is not depreciable (auto-set to 20%).
A cost seg study carves 5/7/15-yr components out of your renovation for 100% bonus; the rest depreciates over 27.5 years.
A typical cost segregation study reclassifies 20-40% of the building basis into 5, 7, and 15-year property that qualifies for 100% bonus depreciation. Default is a conservative 20%.
Total Depreciable Basis
$800,000
Year 1 Bonus (Accelerated)
$160,000
Year 1 Depreciation
$183,273
First-year depreciation of $183,273 × 38.9% combined marginal rate.
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 |
Cumulative depreciation shown at each horizon over the 27.5-year recovery period. "Extra Deduction" is the acceleration benefit versus straight-line at that point in time.
Accelerated depreciation is largely a deferral, not free money. When you sell, depreciation is recaptured — up to 25% on real property (Section 1250) and at ordinary income rates on personal property (Section 1245). A 1031 exchange may defer this.
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.
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.