Cost Segregation Study ROI Calculator
Cost segregation reclassifies 20-30% of a building's value into 5/7/15-year property (vs 27.5/39 year), creating massive first-year depreciation with 100% bonus depreciation under OBBB 2026.
| Building basis (price - land) | — |
| Reclassified to 5/7/15-year property (cost seg %) | — |
| Year 1 bonus depreciation (100% in 2026, OBBB) | — |
| Year 1 tax savings (at marginal bracket) | — |
| Cost segregation study fee | — |
| Net Year 1 benefit (savings - fee) | — |
| ROI on study fee | — |
Cost segregation is the most powerful depreciation acceleration tool for commercial and rental real estate. By engaging an engineer-led study, you reclassify 20-32% of building basis from 27.5-year/39-year recovery property into 5-year, 7-year, and 15-year property — which qualifies for 100% bonus depreciation in 2026 (restored by OBBB). On a $1.5M property, this can generate $80,000-$150,000+ in first-year tax savings. The study fee ($3K-$15K) is typically recovered in tax savings within months.
OBBB 2026 Bonus Depreciation Restoration
The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) restored 100% bonus depreciation for qualified property placed in service in 2026. This reverses the TCJA phase-down (which had reduced bonus depreciation to 60% in 2024 and 40% in 2025). The 100% rate combined with cost segregation studies makes 2026 one of the most powerful years to acquire and depreciate real estate. Property must be placed in service in 2026 to qualify. Real estate professional status (750+ hours, more than half of personal services) is required to use these losses against ordinary income.
Reclassification Percentages by Property Type
Typical cost seg reclassification rates: Residential rental: 20-25% reclassified (carpet, appliances, parking, landscaping). Office building: 22-28% (electrical, HVAC components, decorative finishes). Retail: 25-30%. Industrial / warehouse: 15-20%. Hotel / hospitality: 28-35% (heavy FF&E content). Restaurant: 30-40%. The engineer's job is to identify and document items that have shorter recovery periods than the building itself: lighting fixtures, removable wall coverings, carpeting, decorative wall paneling, landscaping, parking lots, fences, signage, specialized electrical, etc.
Passive Activity Loss Rules
The IRS treats most rental real estate income as passive — losses (including depreciation losses) can only offset other passive income, not W-2 wages or business income. Exception: real estate professional status (750+ hours in real property trades or businesses, AND more than half of personal services in that activity). With REP status, all rental losses become ordinary deductible. Spouses can aggregate. STR (short-term rental, average guest stay 7 days or less) is NOT considered rental — it's an active trade or business and bypasses passive activity rules entirely. STR owners often combine cost seg + bonus depreciation for massive W-2 offset.
Last updated May 2026. Sources: IRS Cost Seg ATG.