Cost Segregation Studies
What a cost segregation study actually does
By default, commercial buildings are depreciated over 39 years and residential rental property over 27.5. But a building isn’t one asset. It’s hundreds of them, and many carry much shorter statutory recovery periods when they’re correctly identified.
A cost segregation study is an engineering-based analysis that separates those components out — carpeting, decorative lighting, specialty electrical and plumbing tied to equipment, cabinetry, fencing, paving, landscaping — and reclassifies them into 5-, 7-, and 15-year property. The building shell stays on its long life. Everything that legitimately doesn’t belong there moves.
The deduction isn’t larger over the life of the asset. It arrives far sooner, which is the entire point: cash you keep now is worth more than cash you keep in 2059.
Typical reclassification targets
5-year: carpet and certain floor coverings, decorative lighting, dedicated equipment wiring, movable partitions, some cabinetry and millwork
7-year: certain office and process-related fixtures and equipment
15-year: land improvements — paving, curbing, sidewalks, site lighting, fencing, landscaping, storm drainage
27.5 / 39-year: structural shell, roof, foundation, and building systems that remain
100% bonus depreciation changes the math
Reclassification and bonus depreciation compound. One finds the short-life property; the other lets you deduct it in full immediately.
Permanent, not phasing out
The 2025 tax law restored 100% bonus depreciation on a permanent basis for qualified property acquired and placed in service after January 19, 2025 — replacing the step-down schedule owners had been planning around.
It applies to what a study finds
Bonus depreciation generally applies to property with a recovery period of 20 years or less. That is exactly the 5-, 7-, and 15-year property a cost segregation study pulls out of the building shell.
Timing rules still matter
Acquisition date, placed-in-service date, and the nature of the property all affect what percentage applies. Property outside the current window may fall under a prior-year phase-down rate.
The honest caveat
Accelerated depreciation is a timing benefit, and it can be recaptured when you sell. It works best when you expect taxable income to offset and intend to hold the property for a meaningful period. We walk through this with you during the free review, before you engage anyone.
Bought it years ago? You haven’t missed the window.
One of the most common reasons owners don’t call is the assumption that the opportunity closed when the return was filed. It usually didn’t.
A look-back study analyzes property placed in service in an earlier year and calculates the difference between the depreciation you took and the depreciation you could have taken. That cumulative difference is generally claimed as a catch-up adjustment on your current-year return through an automatic change in accounting method — filed on Form 3115.
No amended returns. No reopening closed years. The correction happens going forward.
Look-back at a glance
Applies to property still owned and in service
Catch-up claimed in the current year, not by amendment
Filed as an automatic accounting method change
Frequently the largest single-year deduction an owner will see
Where studies tend to pay off
Any depreciable property can be studied. These types carry the component density that makes the analysis worth its fee.
Industrial & manufacturing Process power, specialized flooring, yard improvements
Auto dealerships Service bays, lifts, signage, canopies, paving
Self-storage Fencing, gates, access control, site lighting
Medical & dental Casework, dedicated plumbing and circuits, finishes
Multifamily & apartments Appliances, flooring, cabinetry, amenity areas
Retail & restaurants Decorative finishes, kitchen utilities, storefronts
Hospitality Guest-room FF&E, lighting packages, pools and grounds
Office & flex Partitions, data cabling, tenant improvements, parking
