What does a cost segregation study actually cost?

Engineering-based studies typically run $3,000-$15,000 depending on property size and complexity. Small residential rentals: ~$3-5k. Multifamily and commercial: $8-20k. Some firms offer 'desk studies' at lower price points for properties under $1M, but the IRS prefers engineering-based methodology and the deduction is more defensible on audit.

Can I do cost seg on a property I bought years ago?

Yes — via a Form 3115 'change of accounting method' filing, you can catch up ALL the depreciation you should have taken since acquisition as a single year-1 adjustment (called a §481(a) adjustment). No need to amend prior returns. This makes cost seg attractive even for properties owned 5+ years if the basis is large enough.

Does cost seg trigger an audit?

Not directly. Engineering-based studies follow IRS-published methodology (Cost Segregation Audit Techniques Guide) and are routine. The audit risk comes from filing a Form 3115 catch-up for a large §481(a) adjustment — that's a red flag that often triggers a desk review. The study report is your defense; a reputable cost seg firm will defend their work at audit included in their fee.

What's the recapture trade-off at sale?

Every dollar of accelerated depreciation becomes a dollar of §1250 / §1245 recapture at sale, taxed at up to 25% federal. So a $200k year-1 cost-seg deduction creates a $50k recapture liability later. Two ways to avoid: (1) hold until death — heirs get a stepped-up basis, wiping the recapture; (2) 1031 exchange — defers the recapture into the replacement property indefinitely.

Is cost seg worth it on small properties (< $500k)?

Often not, because the study fee eats into the savings. Below ~$300-500k depreciable basis, the year-1 boost is rarely enough to justify a $3-5k engineering fee. Plug your specific numbers in above — the calculator shows you fee payback in months, so you'll see the answer directly.

Can I combine cost seg with bonus depreciation AND a 1031?

Yes — and it's the gold-standard tax play. Buy a property, do cost seg + bonus in year 1 to drive a huge deduction, hold for cash flow, then 1031 into a larger property to defer all the recapture. Repeat. Heirs eventually inherit at stepped-up basis and the entire deferred tax disappears. Talk to a CPA who specializes in REI to structure correctly.

Cost Segregation Calculator

Q: Is cost seg worth it on small properties (< $500k)?

Often not, because the study fee eats into the savings. Below ~$300-500k depreciable basis, the year-1 boost is rarely enough to justify a $3-5k engineering fee. Plug your specific numbers in above — the calculator shows you fee payback in months, so you'll see the answer directly.

Q: Can I combine cost seg with bonus depreciation AND a 1031?

Yes — and it's the gold-standard tax play. Buy a property, do cost seg + bonus in year 1 to drive a huge deduction, hold for cash flow, then 1031 into a larger property to defer all the recapture. Repeat. Heirs eventually inherit at stepped-up basis and the entire deferred tax disappears. Talk to a CPA who specializes in REI to structure correctly.

Cost segregation breaks an investment property into shorter-life components (5/7/15-year) so you can front-load depreciation and apply bonus depreciation to the 5/7/15 buckets. This calc shows the year-1 tax boost, the NPV vs the study fee, and the §1250 recapture you're stacking up for the sale.

The property

Purchase price

Land allocation

Land doesn't depreciate. Use county assessor's land/improvement ratio.

Reclassification % (of depreciable basis)

5-year property

Carpet, appliances, removable cabinets7-year property

Decorative lighting, some equipment15-year property

Driveways, landscaping, fencing, parking

Typical study yields: residential 20-30% combined, commercial 25-40%. Remainder (75%) stays on 27.5-year SL.

Tax + study assumptions

Bonus depreciation

2024: 60%, 2025: 40%, 2026: 20%, 2027: 0%Marginal tax rate

Federal only. 37% is top bracket.Study fee

Typically $3-15k depending on size.

NPV assumptions

Hold years

Discount rate (for NPV)

Your opportunity cost of capital — typically 6-10%.

Should you do the study?

Marginal — close call

NPV is positive but not by a huge margin. Worth doing if you're in a high bracket; skippable on smaller deals or if you're between properties.

Year-1 tax savings boost

$32,914

vs straight-line baseline $10,764

Net NPV (after fee)

$30,480

Over 10 years @ 7.00% discount

Study fee payback

3 mo

Fee: $8,000

Year-1 deduction with cost seg

$118,047

Multiplier: 4.1×

Year-1 deduction without

$29,091

Plain straight-line baseline

Basis breakdown

Purchase price	$1,000,000
Less: land	−$200,000
Depreciable basis	$800,000
→ 5-year	$80,000
→ 7-year	$40,000
→ 15-year	$80,000
→ Straight-line (27.5 yr)	$600,000

The recapture trade-off

Cost seg pulls depreciation FORWARD; it doesn't create new deductions. Every extra dollar deducted now becomes a dollar of §1250 / §1245 recapture at sale (25% federal). The NPV math above already accounts for this, but here's the cumulative number you'll owe on sale:

Recapture with cost seg

$100,545

On $402,182 cumulative depreciation

Recapture without

$72,727

On $290,909 cumulative depreciation

1031 exchange defers all of this. Roll into a replacement property at sale and the deferred gain (including recapture) carries over. Hold until death and heirs get a stepped-up basis — recapture vanishes.

The big assumption: passive activity rules

Cost seg only pays off if you can USE the depreciation against current income. For most non-real-estate-professional investors, rental losses (including big cost-seg deductions) are "passive losses" — usable only against other passive income, not your W-2. They carry forward but don't reduce this year's tax bill.

Cost seg meaningfully changes your taxes today if any of these apply:

You qualify as a Real Estate Professional (750+ hours/year materially participating in real estate, more than any other job) — losses are non-passive.
You have other passive income (other rentals, syndications, royalties) the losses can offset.
You're using the Short-Term Rental Loophole — average stay < 7 days + material participation makes the activity non-passive.

None of those apply? The deductions still happen, they just carry forward until you have passive income or sell the property. NPV is still positive in most cases, just slower.

Bonus depreciation is phasing out

Bonus rates by tax year (subject to legislative changes): 100% in 2017-2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027 unless Congress extends it. If you're considering a study, the sooner you place the property in service the bigger the year-one bonus deduction.

What this calc doesn't model (talk to a CPA)

State income tax (varies wildly; some states fully decouple from federal bonus).
AMT / NIIT effects.
1031 exchange interaction (a 1031 carries depreciation forward into the new basis — the recapture liability transfers).
The specific §1245 vs §1250 classification of each reclassed component (we apply 25% to the full cost-seg cumulative depreciation as a simplifying assumption; the actual blended rate is usually a bit higher).

Frequently asked questions

What does a cost segregation study actually cost?
Engineering-based studies typically run $3,000-$15,000 depending on property size and complexity. Small residential rentals: ~$3-5k. Multifamily and commercial: $8-20k. Some firms offer 'desk studies' at lower price points for properties under $1M, but the IRS prefers engineering-based methodology and the deduction is more defensible on audit.
Can I do cost seg on a property I bought years ago?
Yes — via a Form 3115 'change of accounting method' filing, you can catch up ALL the depreciation you should have taken since acquisition as a single year-1 adjustment (called a §481(a) adjustment). No need to amend prior returns. This makes cost seg attractive even for properties owned 5+ years if the basis is large enough.
Does cost seg trigger an audit?
Not directly. Engineering-based studies follow IRS-published methodology (Cost Segregation Audit Techniques Guide) and are routine. The audit risk comes from filing a Form 3115 catch-up for a large §481(a) adjustment — that's a red flag that often triggers a desk review. The study report is your defense; a reputable cost seg firm will defend their work at audit included in their fee.
What's the recapture trade-off at sale?
Every dollar of accelerated depreciation becomes a dollar of §1250 / §1245 recapture at sale, taxed at up to 25% federal. So a $200k year-1 cost-seg deduction creates a $50k recapture liability later. Two ways to avoid: (1) hold until death — heirs get a stepped-up basis, wiping the recapture; (2) 1031 exchange — defers the recapture into the replacement property indefinitely.
Is cost seg worth it on small properties (< $500k)?
Often not, because the study fee eats into the savings. Below ~$300-500k depreciable basis, the year-1 boost is rarely enough to justify a $3-5k engineering fee. Plug your specific numbers in above — the calculator shows you fee payback in months, so you'll see the answer directly.
Can I combine cost seg with bonus depreciation AND a 1031?
Yes — and it's the gold-standard tax play. Buy a property, do cost seg + bonus in year 1 to drive a huge deduction, hold for cash flow, then 1031 into a larger property to defer all the recapture. Repeat. Heirs eventually inherit at stepped-up basis and the entire deferred tax disappears. Talk to a CPA who specializes in REI to structure correctly.