Question 1

What is a cost segregation study?

Accepted Answer

A cost segregation study identifies building components that can be reclassified into shorter IRS recovery periods (commonly 5-, 7-, and 15-year property) instead of depreciating everything as 27.5- or 39-year building. The goal is to accelerate depreciation (often increasing deductions earlier).

Question 2

Does cost segregation change total depreciation, or just timing?

Accepted Answer

In most cases it’s primarily a timing shift: you generally accelerate depreciation into earlier years, which can improve cash flow. Total depreciation over the full life is usually similar, but the schedule can change and may affect future gain/recapture considerations.

Question 3

What properties are eligible?

Accepted Answer

Cost segregation is commonly used for residential rental real estate (27.5-year building portion) and commercial real estate (39-year building portion). Eligibility and the “best” approach depend on how the property is used, the placed-in-service date, and the types of improvements.

Question 4

How does bonus depreciation interact with cost segregation?

Accepted Answer

Bonus depreciation generally applies to eligible short-life components (often 5-, 7-, and 15-year property) and can significantly increase year-one deductions when available. The building portion is generally not eligible for bonus.

Question 5

What is “Placed in Service” and why does it matter?

Accepted Answer

Placed in service is the date the property is ready and available for its intended use. It affects when depreciation begins, which convention applies, and which bonus depreciation rules might apply.

Question 6

Can I do cost segregation after I’ve owned the property for a while?

Accepted Answer

Often yes. Many taxpayers do a “lookback” study and may claim a catch-up adjustment for missed depreciation (commonly handled through a change in accounting method). The best approach depends on your facts and filing position.

Question 7

Is cost segregation worth it for smaller properties?

Accepted Answer

Sometimes. It depends on depreciable basis, your tax rate, expected short-life allocations, bonus availability, and whether you can actually use the deduction under your tax situation. A quick feasibility estimate is usually the right first step.

Question 8

Will cost segregation increase audit risk?

Accepted Answer

Any position can be reviewed, but a well-documented, defensible study prepared with appropriate methodology and support is designed to hold up under scrutiny. The quality of documentation matters.

Question 9

What inputs matter most for accuracy?

Accepted Answer

Purchase price, land value (not depreciable), placed-in-service date, and material improvements/renovations. Your tax rate affects the “tax impact” estimate, but the depreciation schedule depends most on basis and classification.

Question 10

Does this calculator model passive loss limitations or W‑2 constraints?

Accepted Answer

No. This calculator estimates depreciation schedules and an illustrative federal tax impact (depreciation × rate). It does not model passive activity limits, REPS status, short-term rental grouping/material participation, AMT/NIIT, or state rules.

Scenario	Depreciation	Federal Tax Impact
No Study	$27,879	$10,315
Typical	$255,655	$94,592
Optimized	$244,073	$90,307

Cost Segregation Calculator

Depreciation for selected tax year

Cost segregation: the basics

What it does

When it tends to pencil

What matters for accuracy

Important note

Frequently asked

See if cost segregation is worth it for your property