Pull depreciation forward. Turn one property into $15K–$40K of paper losses in year one.
If you own a rental, a short-term rental, or commercial property, you're depreciating it over 27.5 or 39 years by default. Cost segregation reclassifies the components of the building — carpet, fixtures, parking, landscaping, plumbing — into 5, 7, and 15-year buckets. Year-one deduction explodes. Most studies generate $15K–$40K of paper losses on the first property alone.
You own property. You haven't run a cost seg study yet.
- One or more rental properties bought in the last 1–10 years
- Short-term rental / Airbnb where the STR loophole is on the table
- Commercial property owner with depreciation running on a 39-year schedule
- Real estate professional status qualifier looking to offset W-2 income
- Fix-and-flip or BRRRR operator with multiple holds and capex history
- Recent property purchase ($500K+ basis) ready to accelerate depreciation in year one
- Inherited property with a stepped-up basis you haven't optimized yet
- 1031 exchange completed where the new property's depreciation should be reset
The mechanics. In plain English.
Default depreciation: residential rental property over 27.5 years, commercial property over 39 years. That means if you bought a $500K rental, the IRS lets you deduct about $18K per year in depreciation. Slow. Boring. Below-market.
Cost segregation looks at the building as a collection of components, not one block. Some of those components are personal property (5-year life — carpet, fixtures, appliances). Some are land improvements (15-year life — landscaping, parking, fencing). Some really are structure (27.5 or 39).
An engineering-grade study reclassifies a chunk of the basis into the shorter buckets, and bonus depreciation rules let you deduct most of that in year one. The same $500K property might generate $80K–$150K of front-loaded depreciation instead of $18K.
If you have real estate professional status or you own a short-term rental with material participation, those paper losses offset your W-2 income directly. That's where the $25K–$40K-per-year W-2-tax-savings stories come from.
$500K rental. What changes when we run a cost seg.
| Bucket | Default schedule | Allocated basis | Year-1 deduction |
|---|---|---|---|
| Building structure (27.5-yr) | Straight-line | $340,000 | $12,360 |
| Land improvements (15-yr) | Bonus depreciation eligible | $60,000 | $24,000 |
| Personal property (5-yr) | Bonus depreciation eligible | $50,000 | $30,000 |
| Land (not depreciable) | — | $50,000 | $0 |
| Year-1 total deduction with cost seg study | $66,360 | ||
| vs. default straight-line over 27.5 years | $18,200 | ||
Numbers are illustrative — actual studies vary by property condition, geography, basis allocation, and applicable bonus depreciation percentage. The 2024 bonus depreciation phase-down means the early-year window matters. Bring us the property details on the Discovery call and we'll model your specific case before any work begins.
Eight deliverables per study. Audit-defensible from day one.
Site inspection (where applicable)
Engineer walks the property in person or via documented virtual inspection.
Component-level basis allocation
Every depreciable component identified, classified by IRS life category, and assigned its share of basis.
Bonus depreciation schedule
Year-by-year depreciation schedule accounting for the current bonus-depreciation phase-out.
Written engineering report
50–100 page report documenting methodology, citations, and component classifications. IRS-ready.
Tax preparer integration
If we prep your return, the cost seg results flow straight into your Schedule E / 8825 / 4562 lines.
STR / REPS positioning memo
If the loss is meant to offset W-2 income, we document material participation and the strategy that supports it.
Look-back study for prior years
Section 481(a) catch-up depreciation if the property was placed in service in prior years.
Audit-defense documentation chain
Every classification supported by photo evidence, invoice, or engineering judgment — defensible the day it's filed.
Partner-supported on $1M+ basis properties.
For smaller properties ($300K–$1M basis), we run the study in-house using our engineering methodology. For larger or commercial properties ($1M+ basis), we coordinate with vetted engineering-firm partners whose work has stood up to IRS audit dozens of times.
Why the split: smaller residential studies are well-suited to our in-house methodology and pricing model. Larger commercial work warrants the on-site walkthrough and additional engineering depth that specialized partners provide. Same audit-defensible output, scoped to the property's actual complexity.
What real estate owners actually ask.
Is cost seg worth it for a $250K rental?
Often no. The study fee starts to make sense around $300K–$500K basis when you can use the losses. Below that, the math gets tight. We tell you on the Discovery call. If your property is too small for cost seg to pay off, the right move is usually accountable plan + bookkeeping + entity optimization, not a study.
What's the STR loophole and do I qualify?
Short-term rentals (average stay under 7 days) bypass the passive-loss rules of section 469. If you materially participate (typically 100+ hours/year and more than anyone else), losses from STR activity offset W-2 income directly. The Discovery call assesses whether your STR setup actually qualifies — most do, some don't.
Can I run cost seg on a property I bought five years ago?
Yes. The Section 481(a) "look-back" study lets you catch up the depreciation that should have been claimed in prior years, taken in the current year. This is one of the highest-ROI moves for owners who held property for years without ever running a study.
What about depreciation recapture when I sell?
Recapture applies at sale — that's true with or without cost seg. The 1031 exchange handles it cleanly if you're rolling. If you're selling outright, we model the recapture cost against the front-loaded savings as part of the study. In most owner-operator cases, the NPV is still strongly positive.
How long does a study take?
In-house studies for smaller residential properties: 3–4 weeks. Partner-supported commercial studies: 6–10 weeks. Look-back studies on properties placed in service in prior years can run a bit longer because we have to reconstruct the prior depreciation history.
One 15-minute call. We model your specific property.
Bring the property details (basis, year acquired, type, location) and we'll model the year-one deduction range and quote the study before any work starts. If the math doesn't justify it, we'll say so.
Book the 15-min Discovery →