What cost segregation does
Normally you depreciate a building slowly — over 27.5 or 39 years. A cost segregation study has an engineer break the property into components and reclassify the ones that qualify as shorter-life property (5-, 7-, and 15-year assets like appliances, flooring, fixtures, and land improvements). Those shorter-life assets can be depreciated far faster, and much of it can often be taken in year one via bonus depreciation. The result is a large up-front deduction that shelters income and boosts near-term cash flow.
This calculator gives a first-order estimate:
- Building basis = purchase price − land value.
- Reclassified amount = building basis × the % moved to short-life property (commonly 20–30%).
- First-year deduction = reclassified amount × the bonus depreciation rate for your year.
- First-year tax savings = first-year deduction × your marginal tax rate.
Worked example
You buy a property for $1,200,000 with $200,000 of land, giving a building basis of $1,000,000. A study reclassifies 25% — $250,000 — into short-life assets. At a 60% bonus depreciation rate, you can deduct $150,000 in year one. At a 32% marginal rate, that's $48,000 of first-year tax savings. Enter these numbers above to confirm.
The bonus depreciation phase-down
The federal bonus depreciation rate is not fixed — it steps down over time (for example 60% for property placed in service in 2024, 40% in 2025, and 20% in 2026). Because of this, the calculator asks you to enter the rate for your placed-in-service year rather than hardcoding one. Always confirm the current rate, since legislation can change it.
Is a study worth it?
A study has a cost, so it pays off best on properties with a higher building basis, where the accelerated deductions — and the time value of getting that cash now — clearly exceed the fee. Note that accelerating depreciation increases the amount subject to recapture when you sell, though a 1031 exchange can defer that. To see the ordinary annual deduction without a study, use the rental depreciation calculator.
Frequently asked questions
What is cost segregation?
A study that reclassifies building components into 5-, 7-, and 15-year property so they depreciate faster, accelerating deductions and cash flow.
How much can it save?
It depends on the reclassified percentage (commonly 20–30%), the bonus rate, and your marginal tax rate — multiplied together for first-year savings.
What is the bonus rate?
It phases down yearly (e.g. 60% in 2024, 40% in 2025, 20% in 2026), so enter the rate for your placed-in-service year.
Is a study worth it?
Usually on higher-basis properties where the accelerated deductions outweigh the study cost. A tax professional can confirm.
Related calculators
- Rental Property Depreciation Calculator — the standard deduction without a study.
- Depreciation Recapture Calculator — the tax on accelerated depreciation at sale.
- 1031 Exchange Calculator — defer that recapture.
- Cash-on-Cash Return Calculator — measure your annual return.