A cost segregation study reclassifies parts of your commercial property into shorter depreciation categories, so you deduct more in the early years and keep more cash working for you. Most studies shift 20% to 40% of a building's cost from the standard 27.5 or 39-year schedule to 5, 7, or 15-year lives. With 100% bonus depreciation now permanently restored, the full reclassified amount can be written off in year one.
Your building is depreciating too slowly.
What Is A Cost Segregation Study?
A cost segregation study is an IRS-accepted, engineering-based analysis that breaks a building down into its individual components and assigns each one to the correct depreciation category under the Modified Accelerated Cost Recovery System (MACRS). Instead of depreciating an entire building over 27.5 years (residential rental) or 39 years (commercial), the study identifies components that qualify for 5-year, 7-year, or 15-year recovery periods.
Common reclassified components include specialty electrical and plumbing, flooring, cabinetry, site improvements like parking lots and landscaping, signage, and security systems. The result is a larger depreciation deduction in the early years of ownership, which lowers taxable income and improves cash flow.
For CPAs: cost segregation is relevant to any client who owns, builds, renovates, or acquires income-producing real property. The study produces an audit-ready report with detailed asset schedules and IRC citations. It integrates directly into the client's depreciation schedule with no changes to the existing filing workflow.
Which properties qualify for a cost segregation study?
Any taxpayer who owns, builds, renovates, or purchases income-producing real property placed in service after 1987 may benefit from a cost segregation study. The property does not need to be new. Used buildings, tenant improvements, and renovations all qualify.
The best candidates are commercial properties with a depreciable cost basis of $750,000 or more. Below that threshold, the study fees may not justify the savings, though every situation is different.
Ideal candidates
New construction or ground-up builds completed in the last 10 years. Acquisitions where the owner plans to hold the property for at least three years. Major renovations or tenant build-outs with significant investment in mechanical, electrical, or plumbing systems. Specialized facilities like manufacturing plants, auto dealerships, medical offices, hospitality properties, self-storage, and data centers.
What qualifies
Building purchases (new or used), ground-up construction, leasehold improvements and major renovations, and tenant-specific build-outs such as clean rooms or data center power infrastructure.
What does not qualify
Raw land or land value, personal residences, properties that are already fully depreciated, and assets the owner plans to sell within 12 months.
What does a cost segregation study reclassify?
The study identifies building components that the IRS allows to be depreciated over 5, 7, or 15 years instead of the standard recovery period. Here are the most common categories.
5-year and 7-year personal property
Decorative millwork and specialty flooring. Dedicated electrical circuits and plumbing for specific equipment. Carpeting and removable wall coverings. Cabinetry and built-in shelving. Audio-visual systems and specialty lighting. Security and alarm systems.
15-year land improvements
Parking lots, curbs, gutters, and walkways. Landscaping and irrigation systems. Exterior signage and monument signs. Fencing and retaining walls. Outdoor lighting and drainage systems.
Eligibility indicators
You are a strong candidate if you have invested heavily in site improvements like parking, lighting, or fencing. Or if your property has specialized mechanical, electrical, or plumbing systems tied to equipment. Large tenant-finish costs are another signal. And if your property is in a high-tax state, accelerated deductions produce especially strong returns.
100% bonus depreciation is back, and it's permanent.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. The phase-down schedule from the Tax Cuts and Jobs Act (which had reduced the rate to 40% for 2025 and 20% for 2026) no longer applies to new acquisitions.
What this means for cost segregation: every dollar reclassified from 39-year property to a shorter recovery period can now be written off in full in year one. A cost segregation study on a $3 million commercial building that identifies 30% of the cost as short-lived components produces $900,000 in first-year deductions. At a 35% tax rate, that is $315,000 in federal tax savings in the first year.
Properties acquired under a binding contract before January 20, 2025 remain subject to the old phase-down rates. The acquisition date (not the closing date) determines which rules apply.
Three steps. We handle the complexity.
Step 1 - Evaluate
We review your property details, construction costs, and renovation history to determine whether a cost segregation study makes financial sense. Not every property justifies the investment, and we will tell you upfront.
Step 2 - Engineer and classify
Our engineering and tax-incentive team performs a detailed analysis of your property, collecting blueprints, cost data, and construction records. Every component is classified into the correct depreciation category with supporting IRC citations.
Step 3 - Deliver
You receive an audit-ready report with detailed asset schedules that integrate directly into your depreciation records. Your CPA reviews, approves, and files. We are available to support any questions from the CPA or in the event of an IRS review.
For CPAs managing multiple clients, the process is the same. We integrate with your existing workflow and prepare everything needed for filing. You review and control the final deliverable.
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We review your shipping activity, port volume records, and underlying JTC or ITC eligibility. We tell you what you have and what you can claim, including prior years within the statute of limitations.Ex Your CPA files the credit using the package we prepare. We handle questions if the return is reviewed.
These are deductions that were already available. The cost segregation study identified them, documented them, and made them audit-ready.
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We collect your port records, run the calculations, and build an audit-ready package that supports the credit on your Georgia return.What property owners have recovered.
Find out what your property has been leaving on the table.
Most commercial property owners who qualify for a cost segregation study have never had one done. The deductions are already available under the tax code. The only question is whether you claim them.
If you own commercial property or you are a CPA with clients who do, the conversation is worth 15 minutes.
Frequently Asked Questions
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A cost segregation study is an engineering-based analysis that identifies components of a commercial or income-producing building that can be depreciated over 5, 7, or 15 years instead of the standard 27.5 or 39 years. The study accelerates depreciation deductions, reduces taxable income in the early years of ownership, and improves cash flow.
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Study fees vary based on property size and complexity. Most commercial studies fall in the range of $5,000 to $15,000. In nearly every case, the tax savings from accelerated depreciation far exceed the cost of the study, often by a factor of 10 to 1 or more.
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Yes. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. The phase-down schedule from the Tax Cuts and Jobs Act no longer applies to new acquisitions. Properties acquired under a binding contract before January 20, 2025 remain subject to the prior phase-down rates.
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Yes. A "look-back" cost segregation study can be performed on any property that is still being depreciated. The IRS allows taxpayers to catch up on missed accelerated depreciation by filing a change in accounting method (Form 3115), which does not require amending prior-year returns. The entire catch-up deduction is taken in the current tax year.
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Buildings with a high ratio of personal property and site improvements relative to the structural shell produce the best results. Manufacturing facilities, auto dealerships, hotels and restaurants, medical offices, self-storage facilities, retail centers, and data centers are all strong candidates. Any commercial property with a depreciable cost basis of $750,000 or more is worth evaluating.
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No. The IRS published its own Cost Segregation Audit Technique Guide, which outlines the methodology the IRS uses to evaluate these studies. A properly conducted study that follows the IRS guide and includes detailed engineering analysis, asset schedules, and IRC citations is designed to withstand audit. TaxCredible delivers audit-ready reports that meet these standards.
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Yes. CPAs routinely engage cost segregation firms on behalf of their clients. TaxCredible works directly with CPA firms to evaluate properties, conduct the study, and deliver all documentation. The CPA reviews and controls the final deliverable and integrates it into the client's depreciation schedule.
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Cost segregation reclassifies building components for accelerated depreciation under MACRS, while Section 179 allows immediate expensing of qualifying personal property up to a dollar limit ($2.5 million as of 2025 under the OBBBA). They can be used together. Cost segregation typically applies to the building itself and its components, while Section 179 is more common for equipment and personal property purchases.