Cost Segregation Calculator
Estimate Year 1 accelerated depreciation deductions and tax savings from a cost segregation study for commercial or investment real estate. Models 5-year, 15-year, and standard depreciation under IRS MACRS rules with 2026 bonus depreciation (100% under OBBB). Free, private, all math runs in your browser.
| Asset Class | Basis ($) | Dep. Life | Year 1 Deduction | Tax Savings |
|---|---|---|---|---|
| Total (With Cost Seg) | — |
What Is Cost Segregation?
Cost segregation is a strategic tax planning technique authorized under IRS Rev. Proc. 87-56 and the MACRS rules in IRC Section 168. Rather than depreciating an entire building at the standard 27.5-year (residential rental) or 39-year (commercial) straight-line rate, a cost segregation study identifies and reclassifies individual building components into shorter-lived asset classes: 5-year personal property (carpeting, appliances, fixtures), 7-year equipment, and 15-year land improvements (parking lots, landscaping, sidewalks, fencing).
These shorter-lived components use the 200% declining balance method under MACRS rather than straight-line, which by itself accelerates depreciation. But the real power in 2026 is bonus depreciation — reclassified 5-year and 15-year components can be fully written off in Year 1 instead of spread across their MACRS lives. Last updated: May 2026.
How Cost Segregation Tax Savings Work
The mechanics are straightforward. Without a cost segregation study, a $2,000,000 commercial building generates a Year 1 deduction of approximately $51,282 (1/39 of the depreciable basis, using the mid-month convention). With a study that reclassifies 15% to 5-year property ($300,000) and 10% to 15-year property ($200,000), those amounts are deducted 100% in Year 1 under 2026 bonus depreciation rules. The remaining 75% ($1,500,000) continues on the 39-year schedule.
The net result: Year 1 deductions jump from ~$51,000 to ~$538,000 — an additional $487,000 in deductions. At a 37% marginal tax rate, that translates to approximately $180,000 in Year 1 tax savings. The cost of the engineering study ($5,000–$15,000) is recovered many times over in the first tax year alone.
According to IRS MACRS asset class tables (Rev. Proc. 87-56), eligible 5-year property asset classes include GDS Class 00.11 (office furniture) and property with no specific class life that is used in certain business activities. Land improvements fall under GDS Class 00.3 with a 15-year recovery period.
Who Benefits from Cost Segregation?
Cost segregation studies deliver the highest ROI for commercial real estate investors in the following situations: (1) properties purchased or constructed for over $500,000; (2) properties held as investment or business use (not personal residence); (3) taxpayers in high marginal tax brackets (32%+) where each dollar of deduction generates maximum tax savings; and (4) properties with significant personal property components — hospitality, restaurants, and retail typically have 30–40% reclassifiable, while office and industrial properties range 15–25%.
Apartment complexes and residential rental properties also qualify. While their building-structure basis depreciates over 27.5 years (shorter than 39 years for commercial), the land improvement and personal property components still benefit from 5-year and 15-year reclassification with bonus depreciation.
Investors planning a 1031 exchange should coordinate cost segregation timing carefully, as recaptured depreciation is taxed upon sale. However, a 1031 exchange defers that recapture, making the combination of cost segregation plus 1031 exchange a powerful long-term wealth-building strategy.
Bonus Depreciation and OBBB 2026
The Tax Cuts and Jobs Act (TCJA) of 2017 initially provided 100% bonus depreciation for qualified property placed in service from September 27, 2017 through 2022. Under the original phase-down schedule, bonus depreciation was set to decline to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026 — creating significant uncertainty for real estate investors.
The One Big Beautiful Bill (OBBB), signed into law in 2025, restored 100% bonus depreciation retroactively and extended it through 2026 for qualifying property. Under current law, 5-year MACRS personal property and 15-year land improvements reclassified through a cost segregation study qualify for 100% immediate expensing under IRC §168(k) when placed in service in 2026. This makes 2026 a highly favorable year to commission a cost segregation study for recently acquired or constructed properties.
Consult a qualified CPA or tax attorney before implementing cost segregation, as passive activity loss rules (IRC §469) and at-risk rules (IRC §465) may limit the usability of accelerated deductions in the year generated depending on your income level and real estate professional status.