What is a cost segregation study?

A cost segregation study is a detailed engineering and tax analysis that reclassifies real property components into personal property or land improvements. This accelerates depreciation deductions.

Who should consider cost segregation?

Real estate investors with properties worth $1M+ typically benefit from cost segregation. It's especially valuable for commercial properties, multifamily buildings, and recently acquired or improved properties.

How long does a cost segregation study take?

Typically 4-8 weeks from start to finish, depending on property complexity and document availability.

What documentation do I need?

Original construction cost, breakdown of costs by component, property photos, blueprints, and acquisition documents. We guide you on what we need.

Can I do cost segregation retroactively?

Yes, you can file an amended return (Form 3115) to implement cost segregation for up to 3 prior years.

Cost Segregation Studies for Real Estate

Cost segregation is one of the most powerful tax strategies available to real estate investors. By reclassifying building components from 27.5 or 39-year property to 5, 7, or 15-year property, you can accelerate tens of thousands of dollars in depreciation deductions into year one.

Form 3115 Catch-Up Depreciation: Claim Years of Missed Deductions in One Year

For properties owned 2, 5, or even 10+ years that never had a cost segregation study, we file Form 3115 to claim all missed depreciation in a single year. This is not an amended return - it is a change in accounting method that the IRS allows without prior approval. We have generated catch-up deductions of $150,000-$400,000 for clients who purchased properties years ago and only used straight-line depreciation. If you have owned rental property for more than a year and never had a cost segregation study performed, you are almost certainly leaving significant deductions unclaimed.

STR vs. LTR: Why Property Classification Matters

Short-term rentals classified as nonresidential property (average rental period of 7 days or less) use a 39-year base recovery period, meaning a larger portion of the building's cost is eligible for reclassification. Long-term rentals use 27.5 years. Both benefit significantly, but STR properties often yield 5-10% more in reclassifiable components as a percentage of purchase price. More importantly, STR losses can offset active income when material participation is met - making cost segregation on short-term rentals one of the most powerful income-offset strategies available to business owners and real estate investors.

100% Bonus Depreciation Is Now Permanent

The One Big Beautiful Bill Act (OBBBA) made 100% bonus depreciation permanent for all qualifying property. This means every component identified in a cost segregation study - whether 5-year, 7-year, or 15-year property - can be fully deducted in the first year. This is the most powerful depreciation environment in modern tax history. There is no longer a phasedown schedule to worry about. Every dollar reclassified through cost segregation is a dollar you deduct immediately.

Real-World Example: STR Cost Segregation in Action

A client purchased a lake house for $750,000 and operated it as a short-term rental with an average rental period under 7 days. Our cost segregation study reclassified $262,000 (35%) of the property into 5-year, 7-year, and 15-year categories - including flooring, cabinetry, appliances, landscaping, paving, plumbing fixtures, electrical components, and decorative finishes. With 100% bonus depreciation, the client claimed a $262,000 first-year deduction, offsetting nearly all of their other income and reducing their federal tax bill by over $91,000 in a single year.

What We Cover

Component-level analysis of building systems and finishes
Reclassification to 5-year, 7-year, and 15-year MACRS property
Bonus depreciation coordination for maximum year-one deductions
Form 3115 catch-up depreciation for properties already in service
Short-term rental (STR) loss optimization for business owners
Long-term rental depreciation coordination
Partial asset disposition strategies
Lookback studies for properties acquired in prior years

Our Process

Property Analysis

We review your property details, acquisition costs, improvements, and current depreciation schedule.

Engineering Study

Our team conducts a detailed component-level analysis identifying assets eligible for accelerated recovery.

Tax Impact Modeling

We calculate the depreciation acceleration and model the tax impact across current and future years.

Implementation

We prepare Form 3115 (if applicable), update depreciation schedules, and coordinate with your return filing.

Frequently Asked Questions

What types of properties qualify for cost segregation?

Any commercial, rental, or investment property with a depreciable basis. Short-term rentals, long-term rentals, office buildings, retail spaces, and mixed-use properties all qualify.

Is there a minimum property value?

We typically recommend cost segregation for properties with a basis of $300,000 or more, though the breakeven point depends on your tax rate and situation.

Can I do a cost segregation study on a property I already own?

Yes. A lookback study with Form 3115 lets you catch up on all missed accelerated depreciation in a single tax year, without amending prior returns.

Ready to Get Started?

Schedule a complimentary consultation and discover how our cost segregation studies for real estate investors services can work for your situation.

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Cost Segregation Studies for Real Estate Investors