Business Tax Strategy · Cost Segregation
How much does a cost
segregation study save?
On most commercial buildings, enough to turn a twenty five thousand dollar first year depreciation deduction into two or three hundred thousand. The study moves twenty to forty percent of the building's cost onto short schedules, and bonus depreciation lets most of that be deducted at once. What that is worth in cash is your tax rate times the deduction, this year instead of over the next four decades.
Quick answer
- Studies commonly move twenty to forty percent of a building's depreciable cost onto 5, 7 and 15 year schedules.
- With one hundred percent bonus depreciation, most of that reclassified amount is deducted in the first year.
- On a one million dollar building, that is roughly two hundred to four hundred thousand dollars of first year deduction instead of about twenty five thousand.
- At a thirty seven percent tax rate, a three hundred thousand dollar deduction is about one hundred ten thousand dollars of tax not paid this year.
- A study on a property that size usually costs a few thousand to fifteen thousand dollars, depending on complexity.
- It is a timing benefit. Depreciation taken early is recaptured when you sell, so the saving is the use of the money in between, which for most owners is worth a great deal.
A worked example
A one million dollar medical office building, bought in 2025, land excluded. Without a study, straight line depreciation over 39 years gives a first year deduction of about twenty five thousand dollars. A study reclassifies thirty percent, three hundred thousand dollars, into 5 and 15 year property. With one hundred percent bonus depreciation, that three hundred thousand is deducted in the first year, on top of the regular depreciation on the remaining structure. At a thirty seven percent federal rate, the study is worth about one hundred ten thousand dollars of tax this year that would otherwise have trickled out over four decades.
What moves the number
Property type
Restaurants, medical offices, dealerships, hotels and manufacturing space reclassify at the high end. Office and warehouse space at the low end. The more finishes, specialty systems and site work, the more there is to move.
Your tax rate
A deduction is worth your marginal rate times the amount. At thirty seven percent it is worth a lot more than at twenty two. State tax adds to it.
Bonus depreciation
One hundred percent for property acquired after January 19, 2025. That is what lets the reclassified amount land in one year rather than spread over five to fifteen.
Income to offset
A deduction only saves tax if there is tax to save. Passive loss rules can park rental losses until there is passive income, which is worth working out before a study is ordered.
What it costs, and what comes back
A study on a property like the one above typically costs a few thousand to fifteen thousand dollars. On the other end, the accelerated depreciation on the personal property portion is recaptured at ordinary income rates when you sell. The benefit is the use of the money in between, which is why it fits owners who plan to hold the building and who have income the deduction can land against. Whether that is you is on when cost segregation is worth it. The definition and the four buckets are on what a cost segregation study is.
Frequently asked questions
How much does a cost segregation study save?
On a typical commercial building, twenty to forty percent of the cost moves to short schedules, and with bonus depreciation most of that is deducted in year one. On a one million dollar property that is a first year deduction of two hundred to four hundred thousand dollars, worth roughly one hundred thousand dollars or more in tax at high brackets.
What does a cost segregation study cost?
Usually a few thousand dollars for a small property up to fifteen thousand or more for a large or complex one. A good provider will estimate the benefit first so you can see whether the fee pays for itself.
Which property types get the biggest reclassification?
Restaurants, medical and dental offices, auto dealerships, hotels, and manufacturing space tend to land at the high end, because so much of the cost is finishes, specialty systems, and site work. A plain warehouse lands at the low end.
Is bonus depreciation still one hundred percent?
Yes, for property acquired after January 19, 2025, under the July 2025 tax law. Property acquired before that date falls under the older phase down schedule, which your CPA will apply.
Do I pay it back when I sell?
Part of it. Accelerated depreciation on the personal property portion is recaptured at ordinary rates when the building is sold. That is why cost segregation is called a timing benefit, and why the exit gets planned alongside the study.
Educational content only, not tax or legal advice. Dollar figures are the statutory amounts and are adjusted for inflation each year, and the rules depend on when a property was placed in service. Talk to a licensed CPA before you act on any of it.
Want the number for your building?
Property type, purchase price, and the year you bought it are enough for a first estimate. We will tell you the likely range and what a study would cost before you decide. Start with the cost segregation overview, send us the details, or call +1 (586) 899-1003.
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