Cost segregation
A cost segregation study breaks a building into its parts so some of them can be depreciated much faster. That can mean larger tax deductions in the years right after you buy, build or renovate a property.
Not every part of a building wears out in 39 years
Normally, a residential rental building is depreciated over 27.5 years and a commercial building over 39 years. But a building is made up of many parts, and some of them have much shorter tax lives.
A cost segregation study, prepared by engineering and construction-cost specialists, identifies those parts and reclassifies them. Items such as certain electrical and plumbing for equipment, carpeting, cabinetry and specialty finishes can often be treated as 5- or 7-year property, and land improvements such as parking lots, sidewalks, fencing and landscaping as 15-year property.
The rules for recovery periods come from the IRS guidance on depreciating property (Publication 946). A well-documented study supports those classifications if your return is ever reviewed.
Often worth a look for
- Commercial buildings: office, retail and industrial
- Multifamily and other rental properties
- Recent purchases, new construction or major renovations
- Properties bought in past years whose depreciation was never accelerated
Why a study can lower your taxes
The total depreciation over the life of the property doesn’t change. What changes is how much of it you can deduct, and how soon.
Faster deductions
Moving costs into 5-, 7- and 15-year categories front-loads depreciation, which lowers taxable income in the early years and can improve cash flow.
100% bonus depreciation
For property acquired after January 19, 2025, qualifying shorter-life components may be eligible for 100% bonus depreciation in the first year. This rule is now permanent.
Catch up on property you already own
A “look-back” study can capture depreciation you missed in prior years through an accounting method change (Form 3115), generally without amending old returns.
Plan for the full picture
Depreciation can be recaptured when you sell, passive activity rules can limit deductions, and California does not follow federal bonus depreciation. We factor these in.
Whether a study makes sense depends on the property’s cost, when it was placed in service and your overall tax situation. Results vary, and we’ll tell you honestly if it isn’t worth it.
We handle the tax side. A specialist partner handles the study.
Check if it’s worth it
We review the purchase price, building basis, placed-in-service date and your tax picture to see whether a study is likely to pay off.
Connect you with our partner
The engineering study itself is performed by a cost segregation specialist we work with, who can often complete it more cost-effectively than engaging a firm on your own.
Apply the results to your return
We build the study into your depreciation schedules, handle bonus depreciation elections and prepare Form 3115 when a catch-up is needed.
Plan for later
We help you plan ahead for depreciation recapture and the tax impact when you eventually sell the property.
Wondering if a study makes sense for your property?
Tell us about the property and we’ll let you know whether cost segregation is worth exploring.
Monday–Friday, 9 am–6 pm Pacific