Cost segregation calculator 2026
See how a cost segregation study could move depreciation on a rental or commercial property into earlier years. It’s an estimate from your numbers, not advice; Krystal checks the real picture on a call.
Land isn't depreciable. Depreciable basis: $600,000
Estimated year 1 tax savings
Illustrative$51,805
At the 32% bracket, before the cost of a study.
Comparison
Without a study · Year 1: $21,818
| Item | Value |
|---|---|
| Without a study · Year 1 | $21,818 |
| With a study · Year 1 | $183,709 |
| Summary | Amount |
|---|---|
| Additional year 1 depreciation | $161,891 |
| Bonus rate applied | 100% |
| 5-year tax savings | $43,985 |
Bonus depreciation · 100%
100% bonus depreciation available (OBBBA permanent)
The One Big Beautiful Bill Act (OBBBA), signed July 2025, permanently restored 100% bonus depreciation for property acquired after January 19, 2025 (no binding contract before January 20, 2025).
Property bought or under a binding contract before January 20, 2025 keeps the old schedule: 40% if placed in service in 2025, 20% in 2026. For your first tax year ending after January 19, 2025 you can elect 40% instead of 100%.
Long-production-period property and certain aircraft follow a slightly later schedule; Krystal checks this on a call.
Asset breakdown
$600,000
- Personal property · 5-year20% · $120,000
- Land improvements · 15-year8% · $48,000
- Building structure · 27.5-year72% · $432,000
Personal property · 5-year: 20% · $120,000
| Slice | Value |
|---|---|
| Personal property · 5-year | 20% · $120,000 |
| Land improvements · 15-year | 8% · $48,000 |
| Building structure · 27.5-year | 72% · $432,000 |
| Component | Share | Amount |
|---|---|---|
| Personal property · 5-year | 20% | $120,000 |
| Land improvements · 15-year | 8% | $48,000 |
| Building structure · 27.5-year | 72% | $432,000 |
| Depreciable basis | $600,000 |
Land value of $150,000 is not depreciable and is left out of the breakdown.
5-year depreciation comparison
| Year | Standard | Accelerated | Additional | Tax savings | Cumulative |
|---|---|---|---|---|---|
| 2026 | $21,818 | $183,709 | +$161,891 | +$51,805 | $51,805 |
| 2027 | $21,818 | $15,709 | -$6,109 | -$1,955 | $49,850 |
| 2028 | $21,818 | $15,709 | -$6,109 | -$1,955 | $47,895 |
| 2029 | $21,818 | $15,709 | -$6,109 | -$1,955 | $45,940 |
| 2030 | $21,818 | $15,709 | -$6,109 | -$1,955 | $43,985 |
| 5-year total | $109,091 | $246,545 | +$137,455 | +$43,985 | $43,985 |
In later years, accelerated depreciation can fall below standard depreciation as the reclassified assets are fully depreciated. Total depreciation over the life of the property is the same; cost segregation shifts deductions to earlier years.
Candidate score
85 / 100 · Excellent
| Study cost and return | Estimate |
|---|---|
| Estimated study cost | $5,000 – $8,000 |
| Year 1 return on study cost | 8.0x |
| 5-year return on study cost | 6.8x |
| Payback | 2 mo |
Score breakdown
- Property Value+20 pts
Good property value for cost segregation
- Property Type+10 pts
Residential property benefits from cost segregation
- Bonus Depreciation Rate+25 pts
High bonus rate maximizes first-year deductions
- Tax Bracket+15 pts
Good tax bracket for meaningful savings
- ROI Potential+15 pts
Excellent ROI - study pays for itself many times over
This property is an excellent candidate for a cost segregation study. The potential tax savings significantly outweigh the study cost.
Estimated recapture at sale: about $73,396
When you sell, the depreciation you took is taxed again. Reclassified 5-, 7- and 15-year property is Section 1245 property, recaptured at your ordinary rate. The building’s straight-line depreciation is unrecaptured Section 1250 gain, taxed at up to 25%. This assumes a sale after year 5, and it applies to all depreciation, not just the extra from cost segregation.
| Recapture | Amount |
|---|---|
| Section 1245 (5-, 7-, 15-year property) at 32% | $53,760 |
| Unrecaptured Section 1250 (building) at 25% | $19,636 |
| Estimated recapture at sale | $73,396 |
| After recapture | Amount |
|---|---|
| 5-year estimate before recapture | $43,985 |
| Recapture added by cost segregation | −$46,124 |
| Net if sold after year 5 | -$2,138 |
Standard depreciation would also be recaptured (about $27,273), so only the difference counts against cost segregation. This assumes a sale after year 5 and ignores the time value of deferring the tax.
Much of the benefit is timing: the deduction comes now and recapture comes at sale, when a dollar is usually worth less.
Ways to manage recapture
- 1031 Exchange: Defer recapture by exchanging into like-kind property
- Hold until death: Stepped-up basis eliminates recapture for heirs
- Installment sale: Spreads the gain over multiple years, though Section 1245 recapture is taxed in the year of sale
- Opportunity Zone investment: Potential deferral and exclusion benefits
An estimate for education, not tax advice. Actual savings depend on your circumstances, the property’s components and a professional cost segregation study. Asset allocations are industry averages and vary by property.
Method
How the estimate works.
What the calculator estimates
Year 1 depreciation with and without a cost segregation study, the tax that difference saves at your bracket, and five years side by side.
- The depreciable basis is the purchase price less the land share
- Personal property (5-year) and land improvement (15-year) shares are industry averages for the property type
- The rest stays on the 27.5-year (residential) or 39-year (commercial) schedule
- Study cost is a range for the property’s size, not a quote
What gets reclassified
- 5-year property (personal property): carpeting, appliances, specialty lighting, decorative fixtures, cabinetry and certain electrical components.
- 15-year property (land improvements): parking lots, sidewalks, landscaping, fencing, outdoor lighting and drainage.
- Building structure: the remaining components stay on the 27.5- or 39-year schedule.
Bonus depreciation by year
The One Big Beautiful Bill Act (OBBBA, signed July 2025) permanently restored 100% bonus depreciation for property acquired after January 19, 2025 (no binding contract before January 20, 2025).
- 2022Acquired before Jan 20, 2025: 100%Acquired after Jan 19, 2025: —
- 2023Acquired before Jan 20, 2025: 80%Acquired after Jan 19, 2025: —
- 2024Acquired before Jan 20, 2025: 60%Acquired after Jan 19, 2025: —
- 2025Acquired before Jan 20, 2025: 40%Acquired after Jan 19, 2025: 100%
- 2026 · currentAcquired before Jan 20, 2025: 20%Acquired after Jan 19, 2025: 100%
- 2027Acquired before Jan 20, 2025: 0%Acquired after Jan 19, 2025: 100%
Who should consider cost segregation
- You own commercial property or residential rental property
- The property is worth $300,000 or more
- You’re in the 32% federal bracket or higher
- You plan to hold the property for at least 5 to 7 years
- You have other income to offset with the deductions
FAQ
Cost segregation questions.
What is cost segregation?
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.
How much does a cost segregation study cost?
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.
What is bonus depreciation and how does it work with cost segregation?
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 acquired after January 19, 2025 (no binding contract before January 20, 2025). Property bought or under a binding contract before January 20, 2025 keeps the old schedule: 40% if placed in service in 2025, 20% in 2026. For your first tax year ending after January 19, 2025 you can elect 40% instead of 100%. Long-production-period property and certain aircraft follow a slightly later schedule; Krystal checks this on a call. Cost segregation identifies assets eligible for bonus depreciation, maximizing your immediate tax benefits.
What properties qualify for cost segregation?
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.
What is depreciation recapture and how does it affect cost segregation benefits?
Depreciation recapture taxes the depreciation you took when you sell the property. Reclassified 5-, 7- and 15-year property is Section 1245 property, recaptured at your ordinary rate. The building's straight-line depreciation is unrecaptured Section 1250 gain, taxed at up to 25%. Much of the benefit is timing: the deduction comes now and recapture comes at sale, and strategies like 1031 exchanges can defer recapture.
Keep reading
Related.
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