"Cost seg" is short for cost segregation, a tax strategy that splits a building into parts so you can depreciate some of them faster. Paired with 100% bonus depreciation, it can turn 15% to 40% of a building's cost into a first-year deduction. It's best for investors who hold property for years and can use the losses.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
Cost seg in one paragraph
When you buy a rental or commercial building, the IRS normally makes you write it off over 27.5 or 39 years. A cost seg study finds the parts that wear out faster, like appliances, flooring, cabinets, and parking lots, and reclassifies them into 5-, 7-, or 15-year property. Those parts qualify for bonus depreciation, which is now permanently 100% for property acquired after January 19, 2025. Result: big deductions now instead of small ones for decades.
The 5 numbers that decide if cost seg is worth it
| Number | Rule of thumb |
|---|---|
| Building value (no land) | $300,000+ is a good starting point |
| Reclassification % | 15%–40%, depending on property type |
| Your tax rate | Higher bracket = bigger benefit |
| Hold period | 5+ years is ideal |
| Study fee | Savings should be 5–10x the fee |
Who cost seg is for
- Owners of apartments, short-term rentals, offices, retail, hotels, and other income property
- Real estate professionals who can use losses against other income
- Short-term rental owners who materially participate
- Anyone who bought, built, or renovated recently, or never did a study on older property
Who should probably skip it
- Owners selling within a year or two
- Owners of low-value properties where the fee eats the savings
- Investors whose losses would be stuck as passive for many years, with no passive income to absorb them
What it costs and how long it takes
- Cost: roughly $2,000 to $15,000 for most properties
- Time: about 2 to 6 weeks
- What you get: a detailed report your CPA uses to file
The three catches
- Depreciation recapture. Selling can tax back some of the benefit.
- Passive loss rules. The deduction only helps now if you can use it.
- Quality matters. The IRS has a full audit guide for these studies. Cheap and thin is risky.
Missed it when you bought?
You can still do a "look-back" cost seg. You file Form 3115 and claim all the depreciation you missed in one year, without amending old returns.
Frequently asked questions
Is cost seg the same as cost segregation?
Is cost seg only for big investors?
Do I need a CPA to use cost seg?
See what your property may qualify for
Run our 2-minute STR Qualification Quiz or model your Low / Mid / High cost segregation range.
Related guides
What Is a Cost Segregation Study? How It Works, Costs, and Savings
Learn what a cost segregation study is, how engineering reports reclassify 5-, 7-, and 15-year property for 100% bonus depreciation, and who benefits most.
Read guideCost Segregation Calculator: Estimate Your Savings in 4 Steps
Estimate your cost segregation savings with a simple 4-step calculation and a ready-made table by property price. No signup needed.
Read guideCost Segregation for Real Estate Investors: Timing, Losses, and Strategy
Cost segregation only pays if you can use the deductions. Learn how passive loss rules, real estate professional status, and timing shape your strategy.
Read guideBonus Depreciation Rules for 2026: What Qualifies and How It Works
100% bonus depreciation is now permanent. Learn what qualifies in 2026, the January 19, 2025 cutoff, how it differs from Section 179, and how to use it.
Read guideThis content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.