Should You Get a Cost Segregation Study?

Yes. Cost segregation applies exclusively to income-producing real property. The IRS requires that the property be placed in service for a business or income-generating purpose for depreciation to be claimed. A primary personal residence does not qualify because personal-use assets cannot be depreciated.

If you rent out a property, you have depreciable basis that a cost segregation study can accelerate.

That property can be any type: short-term rentals on Airbnb or VRBO, single-family homes, multifamily residential buildings, offices, retail buildings, warehouses, restaurants, self-storage facilities, and most other commercial real estate.

Yes. If your personal use exceeds the greater of 14 days or 10% of the days the property is rented at fair market value, the depreciation you can deductis limited.

For properties where personal use is substantial, the complexity and reduced benefit often make cost segregation less compelling than for a pure investment rental. This is why personal use is a key qualifying question, and why we recommend a consultation with our specialists before committing to a study.

Cost segregation produces accelerated depreciation deductions. Deductions reduce taxable income, so you need taxable incometo offset for those deductions to lower your tax bill. The higher your income (and marginal tax rate), the more valuable each dollar of deduction becomes.

As a general rule: if your annual taxable income exceeds $50,000, cost segregation almost always delivers a meaningful, near-term benefit. At $100,000+, the first-year savings can easily exceed the cost of the study by 10× or more.

When you purchased your property determines which tax bill applies, and therefore the amount of depreciation you can recognize.

When did you acquire your property (typically, this is the date the transaction closed)? This determines which tax law applies to your property.

• If before September 28, 2017: Please consult your qualified tax advisor or reach out to us with questions.
• If between September 28, 2017 and January 19, 2025: Please see the table below.
• If after January 19, 2025: The applicable bonus depreciation percentage is 100%.

If you acquired your property between September 28, 2017 - January 19, 2025, then the applicable bonus depreciation percentage is based on the date Placed in Service as follows:

When you sell a depreciated property, the IRS “recaptures” the accelerated deductions through depreciation recapture tax. Personal property (5- and 7-year assets) is recaptured under IRC §1245 at ordinary income rates. Real property (15-year land improvements) is recaptured under IRC §1250 at a maximum 25% federal rate (unrecaptured §1250 gain).

If you sell quickly, you may pay recapture tax before you’ve had time to deploy the tax savings into new investments — reducing the net benefit. As a rule of thumb:

• Under 1 year: Rarely worth it. Recapture at ordinary rates may exceed the original deduction benefit.
• 1–3 years: Borderline. Depends on your tax rate, the size of the study, and whether you can redeploy savings. We advise caution.
• 3+ years: Generally worthwhile. The time value of early-year tax savings deployed into additional investments typically outweighs the future recapture.

One important escape valve: 1031 exchanges. If you exchange your property for a like-kind replacement under IRC §1031, depreciation recapture is deferred — not eliminated — allowing you to roll the benefit forward indefinitely. Many sophisticated real estate investors combine cost segregation with 1031 exchanges as a long-term tax deferral strategy.