Cost Segregation Study ROI Calculator
Cost segregation studies reclassify 15-30% of building basis into 5-year and 15-year property — unlocking accelerated and bonus depreciation. Study cost $5K-$40K typically pays back 5-10x in year-one tax savings.
| Reclassified to accelerated (5+15 yr) | — |
| Year-1 bonus deduction | — |
| Year-1 tax savings (after study cost) | — |
| Study ROI (year-1 savings / study cost) | — |
| Payback period | — |
| NPV of accelerated depreciation (10-yr) | — |
Cost segregation studies reclassify 15-45% of property basis from the standard 27.5-year (residential) or 39-year (commercial) recovery period into 5-year and 15-year buckets. These shorter-life assets qualify for bonus depreciation, accelerating tax deductions into year one. Engineering studies cost $5K-$40K depending on property size and typically deliver 5-10x ROI in year-one tax savings for high-bracket investors.
Typical Reclassification by Property Type
Per IRS-approved engineering methodology: Residential rental: 15-25% of basis reclassified. Office: 15-25%. Retail strip: 20-35%. Restaurants: 25-40% (heavy kitchen equipment, decorative finishes). Hotels: 30-45% (FF&E, decorative). Manufacturing: 30-50% (process-related equipment). Properties with significant land improvements (apartments with pools, parking, landscaping) yield the highest cost seg results.
When Cost Seg Doesn't Pay
(1) Property basis below $500K: study fee eats most of the benefit. (2) Short hold: planning to sell within 3-5 years triggers depreciation recapture at 25% — much of the savings reverse. (3) No tax to offset: low-income year, large passive loss carryforwards already, or non-REP status with no passive income. Best case for cost seg: high-bracket investor (32-37% federal), REP status (or spouse REP), long planned hold (7+ years), property basis above $750K, plan to 1031 exchange at exit to defer recapture indefinitely.
Last updated May 2026. Sources: IRS Cost Segregation Audit Guide.