Cost Segregation Analyzer

Should you pay for a cost segregation study? Estimate tax savings, study ROI, and whether you can actually use the deductions.

Property
$
%

Typically 15-25% for residential, 10-20% for commercial. Check your county assessment for land vs. building split.

Affects bonus depreciation rate. 2022: 100%, 2023: 80%, 2024: 60%, 2025: 40%, 2026: 20%.

Tax Situation
%

Your marginal federal tax bracket (22%, 24%, 32%, 35%, 37%).

%

State income tax rate. 0% for TX, FL, NV, etc.

Without REPS or STR exception, cost seg deductions are passive losses — they can only offset passive income. If you have no passive income, the deductions are suspended.

Reclassification Estimates
%

Carpets, appliances, fixtures, cabinetry, decorative features. Typical: 15-25% for residential.

%

Landscaping, parking lots, sidewalks, fencing, site utilities. Typical: 5-15%.

%

Applied to 5-year and 15-year property in Year 1. Auto-set based on year placed in service.

Study & Hold Period
$

Residential: $3,000-$7,000. Commercial: $5,000-$15,000+.

How long you plan to hold before selling or 1031 exchanging. Affects recapture calculation.

First-Year Tax Savings

$16,673

Additional tax savings in Year 1 from accelerated depreciation vs. standard straight-line.

Study ROI

3.3x

First-year tax savings divided by study cost. Above 2x is strong, below 1x means the study doesn't pay for itself in Year 1.

Net Benefit (After Recapture)

$6,301

Total tax savings over 10 years minus 25% depreciation recapture at sale. This is the true economic benefit.

Warnings

Passive Activity Limitations block these deductions.

Without Real Estate Professional Status or STR exception, cost seg deductions create passive losses that can only offset passive income. If you have no passive income, these deductions are suspended — you pay for the study but can't use the tax benefit until you sell.

Qualify as a Real Estate Professional (REPS) first, or use short-term rentals that meet the STR exception. Use the REPS Qualifier to check your eligibility.

Bonus depreciation is 60% — not full 100%.

Bonus depreciation has been phasing down since 2023. This reduces the Year 1 benefit of cost segregation.

Factor the reduced bonus into your decision. The study still accelerates depreciation but the front-loading is less dramatic than under 100% bonus.

Depreciation recapture erodes more than half the benefit.

At sale, you'll owe $13,127 in recapture tax (25% on accelerated depreciation). Your total savings are $19,428.

Consider a 1031 exchange at sale to defer recapture. Or extend your hold period — the time value of money favors accelerating deductions even with recapture.

Component Breakdown

Purchase price$300,000
Less land (20%)-$60,000
Depreciable basis$240,000
5-Year Property (5yr)$48,000 (20%)
15-Year Property (15yr)$24,000 (10%)
Building Structure (27.5yr)$168,000 (70%)

Depreciation Comparison (First 10 Years)

YearStandardCost SegTax Savings
1$8,727$53,789$16,673
2$8,727$10,589$689
3$8,727$10,589$689
4$8,727$10,589$689
5$8,727$10,589$689
6$8,727$6,749—
7$8,727$6,749—
8$8,727$6,749—
9$8,727$6,749—
10$8,727$6,749—
Total$87,273$129,891$19,428

Study Investment

Study cost$5,000
First-year tax savings$16,673
Payback period4 months
10-year total savings$19,428
Recapture tax at sale (25%)-$13,127
Net benefit after recapture$6,301