Cost Segregation Savings Estimator

By Tom, CPA · Updated October 27, 2026

TL;DR: A cost segregation study moves part of a building's cost into 5-, 7- and 15-year property that qualifies for bonus depreciation, which is permanently 100% for property acquired after January 19, 2025. This estimator compares year-1 depreciation with and without a study and turns the difference into tax savings.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Cost segregation does not create new deductions. It pulls future depreciation into the present. For a FIRE investor that timing can be valuable, especially in a high-income year, but only if the passive activity rules let you use it. Use this estimator to size the potential, then read the limits.

CPA Warning Label: The savings are only real if you can use the deduction: passive loss limits often suspend it. Accelerated deductions also mean more ordinary-income recapture on sale. Studies should be done by a qualified engineer or specialist.

How the estimate works

1. Without a study: building basis / 27.5, simplified to a full year (the real first year uses the mid-month convention; IRS Publication 946).
2. Reclassified amount: basis x the percentage a study moves into personal property and land improvements. Residential studies commonly report ranges of roughly 15% to 30%, but results depend on the property; there is no official percentage.
3. With a study: reclassified amount x bonus rate, plus the remaining building basis / 27.5. For simplicity, any non-bonus part of reclassified property gets no year-1 depreciation here, which understates year 1 slightly when bonus is under 100%.
4. Extra deduction = with-study minus without-study year-1 depreciation; tax savings = extra deduction x your rate.

Bonus depreciation rate

Under the 2025 law, 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025 (IRS Notice 2026-11 and Form 4562 instructions). For the first tax year ending after January 19, 2025, taxpayers can elect 40% instead. Property acquired before that date under a binding contract follows the older phase-down (40% for 2025 placed in service). Enter 0 to see straight-line-only shorter lives, which this simple model treats as no year-1 extra.

Illustration

Illustration: A $500,000 building basis, 25% reclassified, 100% bonus, 32% bracket, $5,000 study.

• Without study: $500,000 / 27.5 = $18,182.
• Reclassified: $125,000, all deducted with 100% bonus.
• Remaining building: $375,000 / 27.5 = $13,636.
• Year 1 with study: $138,636. Extra deduction: $120,455.
• Tax savings at 32%: $38,545; after the study fee: $33,545.

At 40% bonus, year 1 with study is $63,636, extra $45,455, savings $14,545.

What a study reclassifies

Typical items a study separates from the building shell include carpeting and some flooring, appliances, cabinetry and countertops in some cases, decorative lighting, dedicated electrical for equipment, window treatments (5- or 7-year personal property), and site work such as driveways, sidewalks, fencing, landscaping and outdoor lighting (15-year land improvements, IRS Publication 946). Structural components like roofs, walls, HVAC serving the building, and plumbing generally stay 27.5-year property. The engineer's report should tie each reclassified dollar to a specific asset and a specific cost source, because unsupported percentage allocations are a common audit adjustment.

Can you actually use the deduction?

A rental loss is passive unless you qualify as a real estate professional and materially participate, or the property is a short-term rental with average stays of 7 days or less in which you materially participate (IRS Publication 925). Otherwise, the loss is allowed only against passive income or up to the $25,000 allowance, which phases out between $100,000 and $150,000 of MAGI. A suspended loss carries forward; the study still produces value, just later. If you cannot use the loss, the savings figure above is a future benefit, not a year-1 refund.

The recapture side

Reclassified 5- and 7-year property is Section 1245 property. On a sale, depreciation on it is recaptured as ordinary income, not the 25% maximum rate that applies to building depreciation (IRS Topic 409 and Publication 544). If you sell in a few years, much of the benefit reverses at your ordinary rate. Holding long term, a 1031 exchange, or a step-up at death changes that math. Keep the study report, as examiners review cost segregation allocations, and IRS has a published audit techniques guide for them.