Get answers to your cost segregation questions
✓ Last Updated August 8, 2026 | Reviewed for current tax law
Tax Law Changed January 2025: Bonus Depreciation Now 100% Permanent
Prior guidance showing 100% expiration in 2027 is outdated. Federal law signed July 4, 2025, made bonus depreciation 100% permanent for property acquired after January 19, 2025. Yield Shield answers reflect current law.
The Math That Actually Matters: Cost segregation's value depends on how long you hold the property. Here are real-world scenarios for a $1 million commercial property purchase at 24% tax bracket:
| Holding Period | Year-1 Tax Savings | 5-Year Net Benefit | Recapture Risk at Sale |
|---|---|---|---|
| 3 Years | $220K+ | $180K–$220K | ⚠ HIGH RISK: Accelerated depreciation recapture at 25% + depreciation recapture tax |
| 5 Years | $220K+ | $280K–$340K | ⚠ MEDIUM: Manageable recapture; NPV still positive |
| 7+ Years | $220K+ | $380K–$450K+ | ✓ SAFEST: Recapture offset by time-value gains; strongest ROI |
Bottom line: 3-year holds typically break even or lose money after recapture. 5-year holds work if you need immediate cash flow. 7+ year holds maximize NPV. Don't file if you plan to flip in 2 years.
Yes. Form 3115 (Retroactive Cost Segregation Filing) changes everything.
If you acquired the property 2, 3, or even 5 years ago without filing cost segregation, you can file retroactively using Form 3115. You do NOT need to amend prior-year returns. The IRS allows you to make a late cost-segregation election on your current year return, recovering years of missed deductions in one filing.
Example: You bought a $2M apartment building in 2021. It's now 2026, and you haven't claimed cost segregation. You can still file a cost-segregation study and claim retroactive deductions back to 2021 on your 2026 return. This unlocks 5 years of accelerated write-offs without amended returns.
⚠ Timing matters: Do this before you sell. Once you dispose of the property, you can't make a retroactive election.
Cost segregation is a tax strategy that identifies and reclassifies real property assets into personal property and land improvements. This allows you to depreciate certain components of your property more quickly, resulting in greater tax deductions in the early years of ownership.
Our analysis breaks down your property into distinct components such as HVAC systems, flooring, fixtures, and land improvements. Each component is assigned an appropriate depreciation period based on IRS guidelines. This detailed breakdown allows for faster write-offs on items with shorter useful lives.
Bonus depreciation is a federal tax provision that allows you to deduct up to 100% of the cost of qualifying property in the year it is placed in service. Instead of spreading deductions over 27.5 or 39 years, you can write off the accelerated portion immediately, dramatically improving cash flow.
Current law (effective January 2025): Bonus depreciation is now 100% permanent, not expiring in 2027 as older guidance stated. This applies to property acquired after January 19, 2025.
Cost segregation identifies which building components qualify for bonus depreciation. Without a cost-segregation study, you'd treat your entire $2M building as one asset. But the HVAC, flooring, roofing, and fixtures depreciate faster than the structure itself. Cost segregation breaks this down, so you can apply 100% bonus depreciation to the faster-depreciating components (5–15 years instead of 39 years).
Think of it this way: Cost segregation is the analysis. Bonus depreciation is the tax deduction you claim afterward. You need the study to justify which components qualify for the accelerated write-off.
You benefit if:
You probably don't benefit if:
Nearly all commercial and investment real estate qualifies: Office buildings, retail, warehouses, apartment complexes, hotels, industrial buildings, specialty-use properties (medical facilities, data centers, etc.).
Primary residences do NOT qualify (you can't depreciate your personal home). But rental properties, vacation rentals held for business, and commercial use absolutely do.
We handle any real property type. The bigger the property and the more built components (HVAC, electrical, roofing), the bigger your deduction pool.
No. Form 3115 (retroactive cost-segregation filing) is your answer. You can file a cost-segregation study now and claim retroactive deductions back to when you purchased the property, even if you've already filed tax returns for those years.
This is a game-changer for landlords and property owners who didn't optimize in year one. You recover years of missed deductions without amending prior-year returns. The filing happens on your current-year return with Form 3115.
⚠ Act before you sell: Once you dispose of the property, you lose the ability to make a retroactive election. Do this before a 1031 or sale.
Maybe, but it depends on the cost of the study vs. the benefit. A cost-segregation study typically costs $2,500–$7,500 for a standard property. On a $500K asset, you might net $60K–$80K in deductions (24% bracket = $14.4K–$19.2K in tax savings). That's still 3–7x ROI in year one, but the payoff is smaller than a $2M property.
Book a free analysis and we'll tell you if the math works for your specific property. If study cost + recapture risk exceeds your tax benefit, we'll tell you. If it pencils, we'll quantify the upside.
Real numbers (not percentages): On a $1M commercial property, expect $200K–$250K in year-one tax deductions at a 24% bracket, translating to $48K–$60K in immediate tax savings. On a $2.5M acquisition, expect $500K–$600K in deductions, saving $120K–$144K year one.
These deductions flow to your personal or corporate tax return, reducing your taxable income. The actual dollar savings depend on your tax bracket, which we'll account for in your free analysis. Larger properties and shorter-lived components (HVAC, flooring) generate bigger deductions.
Recapture is real, but usually worth it. When you sell, the IRS recaptures the accelerated deductions you claimed. Unrecaptured Section 1250 gain is taxed at a flat 25% rate, regardless of property type, rising to 28.8% if the 3.8% Net Investment Income Tax applies (MAGI above $200K single / $250K married). So if you saved $50K in taxes with cost segregation, you'll pay roughly $12,500–$14,400 in recapture tax when you sell.
Does it pencil? Yes, if you hold long enough. That $50K deduction working for you for 5+ years at typical investment returns outweighs the eventual recapture cost. See the holding-period scenarios above to know if your timeline makes sense.
Pro tip: A 1031 exchange into another property defers the recapture indefinitely, letting you recycle the tax savings into more properties.
A professionally prepared cost-segregation analysis should not increase audit risk. In fact, a defensible study provides strong documentation if the IRS ever questions your depreciation methods. The analysis is based on IRS guidelines (Rev. Proc. 2011-14) and engineering standards.
What helps: Working with a tax professional to file the study correctly with Form 3115. Transparent documentation. Avoiding inflated asset classifications.
⚠ Transparency matters: A study properly filed with professional credentials is less risky than no documentation at all.
Cost segregation and 1031 exchanges work together perfectly. If you acquire a property via 1031 exchange, you can immediately file a cost-segregation study on the new property to claim accelerated deductions. When you eventually 1031 into another property, the recapture tax is deferred again.
Strategy: Buy, cost-seg, hold 5+ years, 1031 into larger property, cost-seg again, rinse and repeat. Each exchange defers recapture and compounds your tax savings across your portfolio.
Yes, our cost segregation analysis is completely free and requires no sign-up. Book a call and we'll walk through your property details with you directly.
You'll need basic information such as property type, acquisition price, location (state), and construction date. We use this to estimate your savings based on your specific situation.
Our free analysis gives you a reliable estimate to decide whether cost segregation is worth pursuing. For a formal study to file with your tax return, we coordinate with CSSI on a comprehensive engineering-based study with proper documentation.
Contact us any time you're evaluating a property, want to discuss your results, or have questions about whether cost segregation makes sense for your portfolio. Our team can help you determine next steps and maximize your tax strategy.