Cost segregation is an IRS-approved strategy that reclassifies parts of a real estate asset from 27.5 or 39-year depreciation into 5, 7, or 15-year schedules. Combined with bonus depreciation, this can generate substantial paper losses in Year 1. Enter your deal details to estimate the potential benefit.
Property Type
Deal Parameters
Total acquisition cost
Land cannot be depreciated. Typical range: 15-25%
Older buildings have fewer reclassifiable components
Determines applicable bonus depreciation rate
Bonus Depreciation Rate
The Tax Cuts and Jobs Act phases bonus depreciation down each year. Auto-filled based on acquisition year, but you can override.
2024: 60%
2025: 40%
2026: 20%
2027+: 0%
Estimated Year 1 Tax Savings
$0
from bonus depreciation deduction
Year 1 Bonus Depreciation
$0
after land exclusion
Depreciation Allocation Breakdown
Paper Loss vs. Real Cash
Cost segregation creates a non-cash tax deduction. You are not spending this money. The property generates real cash flow while the depreciation deduction reduces your taxable income on paper. Think of it as the IRS allowing you to write off the wear and tear on the building upfront.
How the Numbers Were Calculated
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What to Know Before You File
  • Passive loss rules: If you are not a real estate professional (750+ hours/year, more than any other occupation), these losses can only offset passive income. They cannot reduce your W-2 salary or investment income until you have passive income or sell the property.
  • Depreciation recapture: When you sell, the IRS recaptures accelerated depreciation at 25% (Section 1250 unrecaptured gain). The larger your Year 1 deduction today, the larger the potential recapture at sale. Plan for this with your CPA.
  • These are estimates only. Actual allocations require a formal cost segregation study conducted by a credentialed engineer. Studies typically cost $5,000-$15,000 for commercial properties and are themselves deductible.
  • At-risk rules: Your deduction cannot exceed your amount at risk in the investment (generally your cash investment plus recourse debt). Confirm with your CPA if using non-recourse financing.
Estimates only. Actual cost segregation allocations require a qualified engineering study. This is not tax advice. Consult your CPA before filing.