Cost segregation doesn't create new deductions. It moves them earlier. By reclassifying parts of a building from 27.5- or 39-year property into 5-, 7-, or 15-year property, you depreciate those parts faster. With 100% bonus depreciation, those short-life parts can be deducted in full in the first year.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
Normal depreciation vs. cost segregation depreciation
Without a study, most owners depreciate the whole building (minus land) in a straight line:
- Residential rental property: 27.5 years
- Commercial (nonresidential) property: 39 years
That means each year you get the same small slice. A $550,000 residential building gives you about $20,000 a year.
A cost segregation study breaks out the parts that qualify for shorter lives under the tax code. Each group follows its own schedule:
| Asset group | Recovery period | Method | Bonus eligible? |
|---|---|---|---|
| Personal property (carpet, appliances, cabinets) | 5 or 7 years | Accelerated (200% declining balance) | Yes |
| Land improvements (paving, fencing, landscaping) | 15 years | Accelerated (150% declining balance) | Yes |
| Qualified improvement property (interior upgrades to commercial buildings) | 15 years | Straight line | Yes |
| Residential building structure | 27.5 years | Straight line | No |
| Commercial building structure | 39 years | Straight line | No |
The key line in that table is the last column. Anything with a recovery period of 20 years or less can qualify for bonus depreciation.
How bonus depreciation supercharges cost segregation
The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. So the 5-, 7-, and 15-year parts a study finds can usually be expensed all at once in the year the property is placed in service.
The building portion still follows its normal 27.5- or 39-year schedule.
Side-by-side example
A residential rental placed in service in January:
- Purchase price: $700,000
- Land: $150,000
- Building: $550,000
- Study reclassifies: $110,000 (20%) into 5- and 15-year property
| Metric | Without a study | With a study + 100% bonus |
|---|---|---|
| Year 1 deduction | about $19,200 | about $125,300 |
| Remaining building basis | $530,800 | $424,700 |
| Deduction each later year | about $20,000 | about $16,000 |
Total deductions over the full life are the same. The study simply pulls about $106,000 of deductions into year one.
What this means for your taxes
- More cash now. At a 32% tax bracket, $106,000 of extra deductions is about $34,000 of tax deferred.
- Smaller deductions later. Because you took more upfront, later years have less depreciation left.
- Possible recapture on sale. When you sell, the faster-depreciated parts can be taxed as ordinary income through depreciation recapture.
- Loss limits still apply. Rental losses are usually passive. You need passive income to absorb them, or a qualifying status like real estate professional.
What if I didn't do a study when I bought?
You can still do one. A look-back study plus Form 3115 lets you claim all the depreciation you missed in the current year, with no amended returns. The IRS treats it as a change in accounting method.
Frequently asked questions
Does cost segregation increase my total depreciation?
Can I skip bonus depreciation and still use cost segregation?
Does my state follow these rules?
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
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Read guideBonus Depreciation Rules for 2026: What Qualifies and How It Works
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Read guideDepreciation Recapture: What It Is and How to Plan for It
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Read guideThis content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.