In this example, an 8-unit apartment building bought for $750,000 has a $600,000 depreciable building basis. A cost segregation study moves $150,000 (25%) into 5- and 15-year property. With 100% bonus depreciation, the first-year deduction jumps from about $20,900 to about $165,700, which is roughly $50,700 in tax deferred at a 35% rate.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
The property
- Type: 8-unit garden-style apartment building
- Purchase price: $750,000
- Land value: $150,000
- Depreciable building basis: $600,000
- Acquired and placed in service: January 2026
- Bonus depreciation: 100% (acquired after January 19, 2025)
- Owner: Qualifies as a real estate professional, so losses can offset other income
- Tax rate: 35%
This is an illustrative example. Real results depend on the actual building.
Step 1: The study identifies 5-year property
| Component | Cost |
|---|---|
| Appliances in 8 units | $24,000 |
| Carpet and vinyl plank flooring | $22,000 |
| Cabinets and countertops | $28,000 |
| Decorative and unit lighting | $6,000 |
| Electrical and plumbing serving appliances | $11,000 |
| Signage, mailboxes, and other items | $5,000 |
| Total 5-year property | $96,000 |
Step 2: The study identifies 15-year property
| Component | Cost |
|---|---|
| Parking lot and striping | $28,000 |
| Sidewalks and curbs | $8,000 |
| Landscaping and irrigation | $10,000 |
| Fencing | $5,000 |
| Site lighting | $3,000 |
| Total 15-year property | $54,000 |
Step 3: The rest stays as building
| Asset class | Amount | Share |
|---|---|---|
| 5-year property | $96,000 | 16% |
| 15-year property | $54,000 | 9% |
| 27.5-year building | $450,000 | 75% |
| Total | $600,000 | 100% |
The total ties exactly to the depreciable basis. That reconciliation is something the IRS checks.
Step 4: Compare first-year depreciation
| Line item | Without a study | With a study |
|---|---|---|
| 5- and 15-year property (100% bonus) | $0 | $150,000 |
| Building depreciation (January, mid-month) | about $20,900 | about $15,700 |
| Total year-1 deduction | about $20,900 | about $165,700 |
| Extra deduction from the study | — | about $144,800 |
| Tax deferred at 35% | — | about $50,700 |
Step 5: What happens in later years
In years 2 through 27, the owner's building depreciation is lower:
- Without a study: about $21,800 per year
- With a study: about $16,400 per year
Total depreciation over the property's life is the same. The study just front-loads it.
Step 6: Think about the sale
If the owner sells in year 8, depreciation recapture applies. The 5- and 15-year assets are Section 1245 property, so gain tied to them is taxed at ordinary rates, based on their value at sale. Building depreciation is taxed at up to 25%. Many owners still come out ahead because they had the cash years earlier, and some use a 1031 exchange to defer the tax.
Was it worth it?
- Study fee: about $6,000
- First-year tax deferred: about $50,700
- Return on fee: about 8 to 1
For this owner, yes. For an owner who couldn't use the losses this year, the picture would change.
Frequently asked questions
Is 25% a typical result?
What if the owner doesn't qualify as a real estate professional?
Could the owner skip bonus depreciation?
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's in a Cost Segregation Report (and How to Read One)
A cost segregation report should be more than a summary page. Learn the sections a quality report includes and what to check before you file.
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 guideHow Cost Segregation Changes Your Depreciation
See how cost segregation moves building costs into 5-, 7-, and 15-year depreciation, and how bonus depreciation turns that into a big first-year deduction.
Read guideDepreciation Recapture: What It Is and How to Plan for It
Depreciation recapture taxes back some depreciation when you sell. Learn the 25% and ordinary rates, see an example, and explore ways to reduce or defer 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.