When you buy a rental or a commercial building, the IRS lets you write off its cost over time. This write-off is called depreciation. By default, the IRS spreads it over a long time: 27.5 years for a rental home and 39 years for a commercial building.
That is slow. A cost segregation study speeds it up. It breaks your building into parts. Some of those parts wear out faster than the walls and roof, so the law lets you write them off faster too.
The short version: a study moves big deductions from later years into your first year or two. More deductions now means a lower tax bill now, and more cash in your pocket today.
How a study works
An engineer studies your building and sorts it into groups based on how the tax code treats each part. The slow-life shell stays on the long schedule. But many parts qualify for much shorter lives:
- 5-year parts: carpet, appliances, cabinets, special wiring, and decorative lighting.
- 15-year parts: paving, sidewalks, fencing, landscaping, and outdoor lighting.
- 27.5 or 39-year parts: the building shell itself, like the frame, roof, and walls.
Once the engineer sorts the parts, you can claim the short-life deductions right away instead of waiting decades.
Why faster is better
A dollar of deduction today is worth more than a dollar of deduction in 30 years. You can use the savings now to pay down debt, buy another property, or grow your business. This is the time value of money, and a study puts it to work for you.
A study moves big deductions from later years into now, when they help you most.
It works even better with bonus depreciation. Under the OBBBA law, 100% bonus depreciation is permanent for property acquired and placed in service after January 19, 2025. That means you can deduct the full cost of qualifying short-life parts in year one. A study finds those parts so you can claim the full benefit.
What kinds of property qualify?
Almost any building you depreciate. That includes single-family rentals, duplexes, apartments, short-term rentals, hotels, restaurants, retail, office, medical, industrial, and warehouse space. Land itself is not depreciable, so the study works on the building and the site improvements.
How much can it save?
Year-one federal savings often run 5% to 10% of the building's cost for a home rental. For a restaurant or other specialty property, it can reach 25% to 35%. Your real number depends on your tax bracket, your state, and whether you can use the losses this year.
The best way to know is to see your own number. Our free estimate gives you a year-by-year projection before you commit.
Next step: See your savings range in seconds for your property, or read is a cost segregation study worth it? to see if the math works for you.
This guide explains general tax ideas in plain words. It is not tax advice for your specific situation. Your study and tax positions are reviewed by a licensed tax professional. Always confirm the plan with your own advisor.