Cost Segregation Calculator
A cost segregation calculator estimates how much tax a real estate investor can save by reclassifying parts of a building into shorter depreciation lives. Without a study, the whole building (minus land) depreciates slowly: 27.5 years for residential rental property, 39 for commercial. A study moves components like carpeting, landscaping, and specialty electrical into 5, 7, and 15-year buckets, and with 100% bonus depreciation restored, most of that reclassified amount becomes deductible in year one.
This calculator models that trade honestly: year-1 deductions with and without the study, the incremental tax savings at your marginal rates, and the result net of the study’s own cost, which is the number most online estimators quietly omit. If you are still sizing the deal itself, run the house flip ROI numbers first; cost segregation is a tax overlay on an investment that already has to work.
Year-1 tax savings with bonus depreciation, net of the study cost
Estimate only, for planning discussions with your CPA. A real study’s reclassification share depends on the property’s actual components, and only an engineering-based study documented to the IRS standard is defensible on examination. Savings assume you can use the deductions against taxable income.
Quick Answer
Key takeaways
- Cost segregation reclassifies building components into 5, 7, and 15-year property instead of 27.5 or 39-year real property.
- With 100% bonus depreciation (property placed in service after January 19, 2025), the reclassified amount is largely deductible in year one.
- Always judge the study net of its own cost: gross savings mean nothing until the $5,000 to $20,000 study fee is subtracted.
- Depreciation is a timing benefit: recapture taxes some of it back at sale, at up to 25% on real property.
- Properties under about $500,000 often cannot clear the study cost hurdle.
- Quick Answer
- The four buckets your building gets sorted into
- Bonus depreciation and the OBBBA reset
- Worked example: $1M rental, $71,232 of year-1 tax savings
- What this calculator covers, and why each part matters
- Depreciation recapture: the bill that comes due at sale
- When a study does NOT pay
- Frequently asked questions
- Add This Calculator to Your Website
- References
The four buckets your building gets sorted into
A cost segregation study is an engineering exercise: walk the property, inventory the components, and assign each one a recovery period under the tax code. Most of the building stays where it is. The savings come from the pieces that move.
| Recovery period | What typically lands here | Bonus eligible? |
|---|---|---|
| 5-year personal property | Carpeting, decorative lighting, appliances, window treatments, movable partitions, specialty electrical for equipment | Yes |
| 7-year personal property | Office furniture and fixtures, some specialized equipment installations | Yes |
| 15-year land improvements | Parking lots, sidewalks, landscaping, fencing, exterior lighting, pools and site utilities | Yes |
| 27.5 / 39-year real property | The structure itself: foundation, framing, roof, load-bearing walls, central HVAC and plumbing | No |
The share that moves depends heavily on property type. Industry cheat sheets drawn from thousands of actual studies put single-family rentals at roughly 18 to 25% reclassified, short-term rentals at 25 to 35%, multifamily at 20 to 30%, offices at 22 to 32%, retail and restaurants at 22 to 35%, and industrial at 15 to 28%. The calculator pre-fills these midpoints when you pick a property type, and you can override the percentage if your study (or your CPA) gives you a better number. Financing the purchase is a separate question from depreciating it: compare rental mortgage structures and commercial mortgage terms before you model the tax side.
Bonus depreciation and the OBBBA reset
Cost segregation and bonus depreciation are two halves of one strategy. The study creates the short-lived property; bonus depreciation lets you deduct it immediately instead of over 5, 7, or 15 years. For years the bonus percentage was phasing down (100% to 80% to 60% to 40%), which steadily diluted the strategy. The One Big Beautiful Bill Act changed the picture: for property placed in service after January 19, 2025, 100% bonus depreciation is back permanently.
| Placed in service | Bonus rate on 5/7/15-year property | What it means |
|---|---|---|
| After Jan 19, 2025 | 100% | Full first-year deduction of reclassified basis |
| 2024 | 60% | 60% up front, MACRS on the rest |
| 2023 | 80% | 80% up front, MACRS on the rest |
| Before 2023 (post-2017) | 100% | The original TCJA window |
The calculator’s bonus selector exists for exactly this reason: a property placed in service in 2024 gets 60%, not 100%, and the year-1 deduction falls accordingly. Set it to match your placed-in-service date and the estimate stays honest.
Worked example: $1M rental, $71,232 of year-1 tax savings
Take the calculator’s defaults all the way through so you can check the arithmetic.
Step 1: Depreciable basis = $1,000,000 – $200,000 land = $800,000. Land is never depreciable, and carving it out first is the step beginners skip.
Step 2: Reclassified = 22% x $800,000 = $176,000. At 100% bonus, all of it is deductible in year one.
Step 3: Remainder = $624,000 on 27.5-year straight line = $22,691 in year one. Total with study: $176,000 + $22,691 = $198,691.
Step 4: Without the study: $800,000 / 27.5 = $29,091. Incremental deduction = $198,691 – $29,091 = $169,600.
Step 5: Tax savings = $169,600 x 42% combined rate = $71,232. Net of the $7,500 study: $63,732, a 9.5x return.
Enter these exact numbers in the calculator above and you will get the same $71,232. The bar chart is the whole pitch in one glance: the study moves roughly seven years of deductions into year one.
What this calculator covers, and why each part matters
This calculator prices a cost segregation study the way it actually pays: net of the study’s own cost, with property-type rates, state tax layered in, and recapture treated as part of the story, not a footnote.
- Property type, land value, and placed-in-service year, walked through properly. On a $1,000,000 single-family rental with $200,000 allocated to land, the depreciable basis is $800,000. Reclassifying 22% ($176,000) into 5, 7, and 15-year property with 100% bonus depreciation produces a $198,691 year-1 deduction, versus $29,091 on straight-line 27.5-year depreciation. With 100% bonus depreciation (property placed in service after January 19, 2025), the reclassified amount is largely deductible in year one.
- Property-type reclassification rates, not one percentage for every building. The real range runs from about 15% (industrial) to 35% (short-term rentals). One percentage applied to every property type misprices most buildings.
- Savings net of the study cost. The extra $169,600 of deductions at a 42% combined marginal rate saves about $71,232 in tax, or $63,732 after a $7,500 study: a 9.5x return on the study cost. Always judge the study net of its own cost: gross savings mean nothing until the $5,000 to $20,000 study fee is subtracted – and on a $400,000 property the study can eat most of the benefit.
- State tax layered into the savings rate. The 42% combined marginal rate in the worked example layers state tax into the savings, so the saving is the combined saving, not the federal piece alone.
- The MACRS fallback, and recapture at sale. When bonus depreciation is under 100%, the MACRS fallback is modelled rather than assumed away. And depreciation is a timing benefit: the recapture bill that comes due at sale is part of the story here, not a footnote.
Depreciation recapture: the bill that comes due at sale
Accelerated depreciation is a timing benefit, not a permanent exemption. When you sell, the IRS takes some of it back through recapture, and the rate depends on which bucket the property was in. Depreciation on 5, 7, and 15-year personal property is recaptured under Section 1245 at ordinary income rates (up to the depreciation taken). Depreciation on the 27.5 and 39-year real property is recaptured under Section 1250 at a maximum 25% unrecaptured gain rate. Two standard ways investors defer or erase the bill: a 1031 exchange, which rolls the basis (and the recapture exposure) into the next property, and holding until death, where heirs get a stepped-up basis. Model the sale itself with a capital gains tax estimate so the recapture does not surprise you at closing. And remember that property tax rates keep running the whole time you hold: depreciation lowers income tax, not property tax.
When a study does NOT pay
Good candidates
- Properties around $500,000+ where savings clear the study cost several times over
- Hold periods of 5+ years, so the time value of early deductions compounds
- Owners with taxable income to shelter (passive loss rules still apply)
- Short-term rentals with material participation, where losses can offset W-2 income
Poor candidates
- Sub-$500,000 properties where the study fee eats the benefit
- Planned sale within 2-3 years: recapture claws back the win
- Personal residences: no depreciation allowed at all
- Owners with suspended passive losses and no other income to offset
Frequently asked questions
Not when the study is done properly. The IRS Audit Techniques Guide (Publication 5653) describes what a quality study contains rather than setting pass/fail standards, and engineering-based studies with component-level documentation sit within normal examination risk. Risk concentrates in DIY studies built from flat percentages with no engineering basis.
Yes, through a lookback study. You file Form 3115 to change your accounting method and claim a Section 481(a) catch-up deduction for the depreciation you missed in prior years, all on the current return, without amending old ones. Bonus depreciation applies based on the original placed-in-service date, so check which rate that year carried.
Typically $5,000 to $20,000 depending on property size, complexity, and whether the firm does a site visit. Engineering-based studies from actual cost records cost the most and are considered the gold standard; estimate-based approaches cost less. The calculator above nets the fee out of your savings so you see the real return.
You can estimate, but a flat percentage with no component-level documentation is exactly the kind of study the IRS views with caution. The 13 elements in Publication 5653 include preparer expertise, documented methodology, unit costs from engineering take-off, and reconciliation to actual costs. An estimate is fine for deciding whether to order a study; it is not a substitute for one.
Usually from the property appraisal, the purchase price allocation in your closing documents, or county assessed land-versus-improvement ratios. Land is never depreciable, so every dollar allocated to land is a dollar of lost depreciation. Get the allocation right before running any study math.
No. Depreciation, including cost segregation, is only available for property held for business or investment use. A personal residence gets no depreciation deductions at all, no matter how it is classified.
Depreciation recapture applies. The 5, 7, and 15-year property is recaptured at ordinary income rates under Section 1245; the building itself is recaptured at up to 25% under Section 1250. A 1031 exchange defers the bill by rolling basis into the next property, and heirs receiving a stepped-up basis erase it.
When average guest stays are 7 days or less and the owner materially participates (roughly 100+ hours managing, more than anyone else), short-term rental losses can be non-passive and offset W-2 income. Combined with 100% bonus depreciation on the reclassified components, that is why short-term rentals show the highest savings percentages of any property type in the calculator.
References
- Internal Revenue Service. Publication 5653, Cost Segregation Audit Technique Guide (February 2025 revision). Accessed October 19, 2026.
- Cost Segregation Smart. Cost Segregation Audit Defense: IRS Publication 5653 Elements and Governing Statutes. Accessed October 19, 2026.
- Cost Segregation Smart. IRS Cost Segregation ATG: The 13 Principal Elements of a Quality Study. Accessed October 19, 2026.
- WCG CPAs. Look-Back Cost Segregation: Form 3115, Section 481(a), and Bonus Depreciation Rules. Accessed October 19, 2026.
- Brady Ware. Cost Segregation Audit Technique Guide: PATH Act Update. Accessed October 19, 2026.
- TaxBuzz. Cost Segregation Depreciation Guide. Accessed October 19, 2026.
- John Geantasio CPA. Cost Segregation Calculator and ROI Example. Accessed October 19, 2026.