A cost segregation study is not free. So the real question is simple: does it save you more than it costs? For most owners, the answer is yes, often by a wide margin. But not always. This guide shows you how to tell.
The basic math
A study pays off when the tax it saves is bigger than the fee you pay. Our fees are flat and published. Self-Serve home rental studies start at $497. Expert Reviewed studies, checked and signed by an accountant on our team, start at $2,500and step up with the property's value. Commercial starts at $1,497.See full pricing.
Now compare that to the benefit. A study commonly moves 5% to 10% of a rental home's depreciable cost into the first year as extra deductions. On a $400,000 building that is $20,000 to$40,000 of additional year-one deduction. At a32% marginal rate, that is roughly $6,000 to $13,000 of tax deferred in the first year.
Rule of thumb: if the building is worth more than about $200,000 once you take the land out, a study almost always saves far more than it costs. Below that, it can still work, but the math is closer.
Does it save more than it costs? For most owners, yes, by a wide margin.
The four questions that actually decide it
The fee comparison above is the easy part. In practice the answer turns on four things, and most people get the second one wrong because it is the only one that is not about the building.
1. Is there enough depreciable basis?
Land is not depreciable, so only the building and its site improvements count. On a typical purchase, land is 15% to 25% of the price, which means a$500,000 property might carry $400,000 of depreciable basis. Below roughly $200,000 of basis the deduction gets small enough that the fee and your own time start to matter. Above it, the arithmetic is rarely close.
2. Can you actually use the deduction this year?
This is the question that decides most borderline cases, and it has nothing to do with your property. A deduction is only worth your marginal ratethis year if you have income this year it is allowed to offset. Rental losses are passive by default, and passive losses offset passive income, not your salary.
Three common ways the loss becomes usable against ordinary income: you qualify as a real estate professional; your rental averages stays of seven days or less and you materially participate, which takes it outside the per-se passive rule (how that works); or you have other passive income the loss can offset.
If none of those apply, the study is not wasted. The loss suspends and carries forward, and it frees up when you have passive income or when you sell the property. But the benefit arrives later than the year you paid for the study, and that is the honest trade.
3. How long will you hold it?
Cost segregation accelerates deductions; it does not create new ones. Over the full life of the building the total depreciation is identical either way. The value is in timing, so the longer you hold, the longer you keep the money that timing frees up. A few years is usually plenty. A sale inside a year or two is where the math turns.
4. How will you exit?
On a sale, the accelerated portion is recaptured: the §1245 property comes back as ordinary income rather than at capital-gain rates (IRC §1245). That can make the reversal more expensive than the original saving. Two common ways to handle it are holding longer or deferring the gain through a 1031 exchange. Planning to sell soon is the single clearest reason to skip a study.
A worked example, with the timing shown
Take a $500,000 rental, 20% land, so $400,000 of depreciable basis. Straight-line over 27.5 years is about $14,545 of depreciation in year one.
Say a study reclassifies 20% of basis, $80,000, into 5, 7 and 15-year property, and bonus depreciation writes that off immediately. The remaining $320,000 of structure still depreciates straight-line, giving $11,636, and the $80,000 is written off at once. Year-one depreciation is about $91,636 instead of $14,545. At a 32% marginal rate that is roughly $29,324 of tax deferred in year one rather than $4,654.
Two things that example does not say. The 20% reclassification is a common outcome, not a promise; the real figure depends on the building, its furnishings and its site work. And every dollar accelerated is a dollar not available in later years, which is exactly why questions 3 and 4 matter.
When we will tell you to skip it
- You are selling within a year or two. Recapture reverses much of the benefit, sometimes at a worse rate than you saved at.
- There is no income the loss can reach, and none of the three routes in question 2 apply to you. The benefit is real but deferred.
- The depreciable basis is small. Below roughly $200,000, the fee and your time eat too much of it.
- The property is already fully depreciated, or nearly so. There is little left to accelerate.
We would rather tell you no than sell you a study that does not pay for itself. The free estimate is built to surface that before you spend anything.
What changes the answer more than people expect
Bonus depreciation is back at 100%, permanently
A study moves cost into 5, 7 and 15-year classes. What that is worth in year one depends on how much of it bonus depreciation can write off immediately. Under the 2025 law, 100% bonus is permanent for property acquired and placed in service after 19 January 2025 (the statute). During the phase-down years the same study produced a smaller first-year number, so older advice about whether a study "pays" is often out of date.
You do not have to have bought this year
A study on a building you have owned for years captures every deduction you should have taken but did not, in a single catch-up on the current return using Form 3115. No amended returns. That makes the decision less time-sensitive than most owners assume, and it means a property you passed on two years ago is still a candidate.
The fee is deductible too
The study is an ordinary business expense of the rental activity, so the fee itself reduces taxable income. At a 32% marginal rate a $497 study has a net cost closer to two-thirds of that. It is a small effect next to the deduction, but it moves the break-even in the right direction and it is routinely left out of the comparison.
What about a building I have owned for years?
Good news: you do not lose the chance. A study can apply to a property you have owned for a while. You claim every deduction you missed in one catch-up, using Form 3115. No amended returns needed.
How to know your number first
You do not have to guess. Our free estimate gives you a year-by-year projection for your exact property before you spend anything. You see the savings, the fee, and the net benefit side by side.
Next step:See your savings range in seconds. If the number does not work for you, there is no cost and no pressure.
This guide explains general tax ideas in plain words. It is not tax advice for your specific situation. Savings examples are illustrations, not promises. Your study and tax positions are reviewed by a licensed tax professional. Always confirm the plan with your own advisor.