Question 1

What is cost segregation?

Accepted Answer

Cost segregation is a tax strategy that allows commercial and residential rental property owners to accelerate depreciation deductions by reclassifying building components into shorter recovery periods (5, 7, or 15 years instead of 27.5 or 39 years). This front-loads tax deductions, providing significant cash flow benefits in the early years of ownership.

Question 2

How much does a cost segregation study cost?

Accepted Answer

A cost segregation study typically costs between $5,000 and $15,000 for most properties, depending on size and complexity. Properties valued at $500K-$1M usually cost $5,000-$8,000, while larger properties ($1M-$3M) cost $8,000-$15,000. The study usually pays for itself many times over in Year 1 tax savings.

Question 3

What is bonus depreciation and how does it work with cost segregation?

Accepted Answer

Bonus depreciation allows you to deduct a large percentage of the cost of certain assets in the year they are placed in service. The TCJA originally phased bonus from 100% (2018-2022) down to 80% (2023) and 60% (2024). The One Big Beautiful Bill Act (OBBBA, July 2025) permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. Cost segregation identifies assets eligible for bonus depreciation, maximizing your immediate tax benefits.

Question 4

What properties qualify for cost segregation?

Accepted Answer

Most commercial properties and residential rental properties with a depreciable basis of $300,000 or more are good candidates. This includes office buildings, retail spaces, warehouses, apartment buildings, rental homes, and mixed-use properties. Properties with higher values and those in the 32%+ tax brackets see the best returns.

Question 5

What is depreciation recapture and how does it affect cost segregation benefits?

Accepted Answer

Depreciation recapture is a tax on the accelerated depreciation when you sell the property. It is taxed at 25% for real estate (Section 1250 gain). However, cost segregation still provides a net benefit because: (1) you get the tax savings upfront and can invest them, (2) the time value of money means paying later is better than paying now, and (3) strategies like 1031 exchanges can defer or eliminate recapture entirely.

Cost Segregation Calculator 2026