Cost Segregation FAQ: 15 Questions Investors Ask Before Ordering a Study

These are the questions investors ask most often. Each answer is short and links to a deeper article. This is general education, not tax advice. Your CPA should confirm how the rules apply to you.

What is a cost segregation study?

A study splits the purchase price of a building into its parts and assigns each part a depreciation life. Parts such as appliances, removable fixtures and site improvements can be depreciated over 5, 7 or 15 years instead of the 27.5 or 39 years used for the building. Read the complete guide.

Does a study create new deductions?

No. It does not change the total depreciation you can claim over the life of the property. It moves deductions into earlier years.

How does bonus depreciation work now?

Congress made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. The IRS explained the rule in Notice 2026-11. See the IRS announcement. It applies to property with a recovery period of 20 years or less, which covers the 5, 7 and 15-year property a study identifies. It does not apply to the building structure. Earlier acquisitions may fall under older rates.

Was bonus depreciation scheduled to drop to 20% in 2026?

Under the old law, yes, that was the schedule. The 2025 law replaced it for property acquired after January 19, 2025. If an article still says the rate drops to 0% after 2026, it is out of date. See bonus depreciation in 2026.

What property qualifies?

Rental and commercial buildings that you own and depreciate, including houses, apartment buildings, offices, retail, warehouses and restaurants. Land is not depreciable.

How much of my property will move to shorter lives?

It depends on the property type, the fit-out and the documentation. Published ranges are wide, and there is no official IRS table. See reclassification percentages for the sources.

What does a study cost?

Traditional engineering firms commonly charge thousands of dollars per property. ROOM42 charges a one-time $525 per unit. See cost segregation study cost and the pricing page.

Do I have to pay the tax back when I sell?

If you sell at a gain, depreciation is recaptured. Gain on the 5, 7 and 15-year property is generally taxed as ordinary income, up to the depreciation claimed. Gain from straight-line depreciation on the building is taxed at up to 25% federal. A long hold or a 1031 exchange can change the result. See depreciation recapture.

I bought my property years ago. Is it too late?

Usually not. You can generally do a study now and claim the missed depreciation on your current return by filing Form 3115, without amending old returns. See how to file Form 3115 and look-back studies.

Can I use the deduction against my salary?

Only if the rules allow it. Rental losses are generally passive. A $25,000 allowance exists for some taxpayers who actively participate, and it phases out between $100,000 and $150,000 of modified adjusted gross income. Real estate professionals who materially participate are treated differently. See the limits in the complete guide.

Does cost segregation work for Airbnb and other short-term rentals?

It can. If the average guest stay is 7 days or less, the activity is not treated as a rental activity under the passive loss rules, so material participation decides whether the loss is passive. You need records of your hours. See the short-term rental example.

Is a cost segregation study an audit risk?

The IRS addresses cost segregation in its Cost Segregation Audit Techniques Guide, Publication 5653. Support for each allocation matters. A study with itemized assets, costs and a stated method is easier to defend than a rule of thumb. No study removes audit risk.

Can I do a study myself?

You can try, but the IRS guide expects documented methods and costs for each asset. See DIY vs professional cost segregation.

When is a study not worth it?

When the building basis is small, when you expect to sell soon, or when you cannot use the losses. See the worked example and is cost segregation worth it?.

What should I give my CPA?

The study report, your closing statement, the date the property was placed in service, and the depreciation you have already claimed. If the property was placed in service in a prior year, your CPA also prepares Form 3115.