Cost Segregation Study
An engineering study that reclassifies parts of a building from 39-year property into 5/7/15-year property — unlocking massive year-1 depreciation.
What it is
When you buy or build commercial real estate, the IRS default is to depreciate the whole thing over 39 years (27.5 for residential rental). A cost segregation study breaks the building into components — flooring, wiring, fixtures, land improvements — many of which actually qualify for 5, 7, or 15-year depreciation.
Why now matters
Combined with bonus depreciation, eligible 5/7/15-year property can be largely written off in year one. For a $2M building, that often means $300k–$600k of accelerated deductions in the first year.
When it pays
Generally worth it for buildings $500k+. ROI is typically 10–30x the study fee in present-value tax savings.
Watch out for
- •Recapture tax applies if you sell within the depreciation horizon.
- •Bonus depreciation percentages step down annually — the window matters.
- •Requires a qualified engineering firm, not just your Tax Professional.
Educational only — not tax, legal, or investment advice. Talk through your specific situation with a qualified advisor.