Cost Segregation Calculator

What cost segregation does

• Standard depreciation deducts a building's cost in equal annual amounts over 27.5 years (residential) or 39 years (commercial). The entire purchase price (minus land) goes into a single long-lived asset class.
• Cost segregation reclassifies components of the building into shorter-lived asset classes: 5-year personal property (fixtures, flooring, appliances, electrical outlets), 15-year land improvements (parking lots, landscaping, fencing, site utilities), and the remaining 27.5- or 39-year building structure.
• Why it matters: 5-year and 15-year property depreciate much faster under MACRS — and qualify for bonus depreciation (immediate expensing of a percentage in year 1). This front-loads deductions, improving cash flow in the early years of ownership.
• Bonus depreciation phases down from 100% (2022) to 60% (2024), 40% (2025), 20% (2026), and 0% (2027) under current law. Congress may extend it; update the field to model different scenarios.
• The benefit is timing, not total savings. Reclassified assets are fully depreciated sooner, so later years have smaller deductions. The net present value captures the time value of taking bigger write-offs now.

Worked example

A $1.2M commercial building with $200,000 land value has a depreciable basis of $1,000,000. A cost-seg study reclassifies 15% ($150,000) as 5-year personal property and 10% ($100,000) as 15-year land improvements. Under 20% bonus depreciation, the year-1 deduction is about $97,231 versus $25,641 under standard 39-year depreciation — an extra $71,590 deduction worth roughly $26,500 in year-1 tax savings at a 37% rate. At an 8% discount rate the NPV benefit of the full acceleration is about $48,000, well above the $5,000–$15,000 cost of a typical cost-seg study.

Frequently asked questions

What does a cost segregation study cost, and is it worth it?

A cost segregation study typically costs $5,000–$20,000 for commercial properties, depending on size and complexity. The NPV tax benefit on most properties with a $500,000+ depreciable basis exceeds the study cost many times over. The calculator's NPV output is the number to compare against the study fee.

What percentage of a building is typically reclassified?

Reclassification rates vary widely by property type. Multifamily residential: 5-year 15–25%, 15-year 8–12%. Office: 5-year 8–15%, 15-year 10–15%. Retail: 5-year 12–20%, 15-year 10–18%. Hotel/hospitality: 5-year 20–35%, 15-year 10–15%. Warehouse/industrial: 5-year 5–10%, 15-year 15–25%. Use the middle of these ranges for a preliminary estimate.

Does cost segregation trigger depreciation recapture?

When you sell the property, §1250 depreciation recapture applies. Unrecaptured §1250 gain (building depreciation above straight-line) is taxed at a maximum rate of 25%. Reclassified personal property that qualified for §1245 treatment is taxed at ordinary income rates on sale. A 1031 exchange defers this recapture if you reinvest in a like-kind property.

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

Yes. A "look-back" cost segregation study can be performed on a property placed in service in any prior year. Under Revenue Procedure 2002-9, you can catch up all prior years' missed accelerated depreciation in the current year without amending past returns (a Form 3115 change in accounting method). This can produce a large one-year deduction.

Formulas last reviewed October 3, 2026. Results are estimates for educational use; not financial advice. Methodology →