Cost segregation calculator
Estimate what a cost segregation study could do for a residential rental's first-year depreciation. Enter the purchase price and purchase costs, the land share, the shares a study moves to 5-year and 15-year property, the month the rental was placed in service, the bonus depreciation rate, your tax rate and the study's cost. The results compare the first year's depreciation with and without the study and show the tax put off, less what the study costs.
Your results
EstimateExtra first-year depreciation: $116,909.09
- First-year depreciation with the study
- $129,272.73
- First-year depreciation without the study
- $12,363.64
- Tax put off in the first year
- $28,058.18
- First-year tax put off, less the study's cost
- $23,058.18
- Moved to 5-year property
- $72,000.00
- Moved to 15-year property
- $48,000.00
- Left on the 27.5-year schedule
- $360,000.00
- Building depreciation per full year, with the study
- $13,090.91
- Building depreciation per full year, without the study
- $17,454.55
- Of the $480,000.00 depreciable basis, the study moves $120,000.00 to 5- and 15-year property. First-year depreciation goes from $12,363.64 to $129,272.73.
- Total depreciation over the years is the same with or without a study: it moves deductions earlier, and later years deduct less. When you sell, part of the gain may be taxed as depreciation recapture.
- An estimate for planning, using the half-year convention for the 5- and 15-year property. Passive activity rules can limit how much of a rental loss you can deduct in a year. It is general information and is not tax advice. Ask a tax professional before you order a study or file.
Results are estimates for planning only. They are not legal, tax or investment advice, and they apply no state or local rules. Check your lease, your local laws and a qualified professional before you rely on a number.
How the cost segregation estimate is calculated
Extra first-year depreciation = building x 27.5-year first-year rate + (5-year + 15-year property) x bonus rate + the rest at the first-year MACRS rates - whole basis x 27.5-year first-year rate
Without a study, a residential rental's whole depreciable basis, the price and purchase costs less the land, is depreciated in a straight line over 27.5 years. The first year uses the mid-month convention: the month placed in service counts as half a month, so a rental placed in service in April gets 8.5 months of depreciation that year.
A cost segregation study looks at the building in detail and moves parts of the basis to shorter recovery periods. For a residential rental, appliances, carpet, furniture and similar items are usually 5-year property, and land improvements such as driveways, fences, sidewalks and landscaping are 15-year property. What is left stays on the 27.5-year schedule. Enter the shares your study, or the firm quoting it, gives you. The IRS describes what a quality study includes in its Cost Segregation Audit Techniques Guide.
The 5- and 15-year property can take bonus depreciation, a deduction of a share of its cost in the first year. IRS Notice 2026-11 says the One Big Beautiful Bill Act made the rate a permanent 100% for qualified property acquired and placed in service after January 19, 2025, and that property acquired earlier follows the older phase-down, which the notice gives as 40% for property placed in service in 2025. The building itself does not qualify. Whatever bonus depreciation does not cover is depreciated at the first-year rates in IRS Publication 946: 20% for 5-year property and 5% for 15-year property, under the half-year convention.
The extra first-year depreciation is the first year with the study less the first year without it. Multiplied by your marginal tax rate, it is the tax put off in the first year. The tax is deferred: total depreciation is the same either way, so later years deduct less, and when you sell, part of the gain may be taxed as depreciation recapture. Passive activity rules (IRS Publication 925) can limit how much of a rental loss you can deduct in a year, and some states do not follow the federal bonus depreciation rules. If more than 40% of the depreciable property other than buildings that you place in service in a year goes into service in its last three months, the mid-quarter convention applies to that property and its first-year figures are lower. It is general information and is not tax advice. Ask a tax professional before you order a study or file.
Worked example
A small apartment building costs $600,000 with purchase costs, and the land is 20% of the value. It is placed in service in April. A study quote moves 15% of the depreciable basis to 5-year property and 10% to 15-year property; these shares are for this example only, and every building differs. Bonus depreciation is 100%, the owner's marginal tax rate is 24% and the study costs $5,000.
- Depreciable basis: $600,000 x (1 - 20%) = $480,000. Moved to 5-year property: $480,000 x 15% = $72,000. Moved to 15-year property: $480,000 x 10% = $48,000. Left on the 27.5-year schedule: $360,000.
- Without the study: $480,000 / 27.5 x 8.5 / 12 = $12,363.64 of first-year depreciation.
- With the study: $360,000 / 27.5 x 8.5 / 12 = $9,272.73 on the building, plus $72,000 + $48,000 = $120,000 of bonus depreciation, which is $129,272.73.
- Extra first-year depreciation: $129,272.73 - $12,363.64 = $116,909.09.
- Tax put off: $116,909.09 x 24% = $28,058.18. Less the $5,000 study: $23,058.18.
- In later years the building deducts $360,000 / 27.5 = $13,090.91 a year, against $480,000 / 27.5 = $17,454.55 without the study.
The study adds $116,909.09 of first-year depreciation, from $12,363.64 to $129,272.73. At a 24% tax rate that puts off $28,058.18 of tax in the first year, or $23,058.18 after the study's cost.
Frequently asked questions
What is a cost segregation study?
It is a detailed review of a building, usually by engineers or specialists, that splits its cost into parts with shorter recovery periods, such as 5-year appliances and carpet and 15-year land improvements, and the building that stays on the 27.5-year schedule. The shorter periods move depreciation into the early years.
Does cost segregation save tax or put it off?
Mostly it puts tax off. Total depreciation over the years is the same with or without a study, so later years deduct less, and when you sell, part of the gain may be taxed as depreciation recapture. In the example, the extra $116,909.09 of first-year depreciation puts off $28,058.18 of tax at a 24% rate.
What if bonus depreciation does not apply?
The 5- and 15-year property is then depreciated at the first-year MACRS rates of 20% and 5%. In the example, that gives $72,000 x 20% = $14,400 and $48,000 x 5% = $2,400, plus $9,272.73 on the building: $26,072.73, or $13,709.09 more than without the study.
Is cost segregation worth it for a small rental?
It depends on the building, the study's cost and whether you can use the extra deduction this year. Passive activity rules can limit a rental loss, and a sale soon after the study brings recapture. Run your own figures here, get a quote that shows the shares a study expects, and ask a tax professional.
Can I do a cost segregation study on a rental I already own?
Often, yes. A study can be done in a later year, and the depreciation you could have claimed is usually caught up in the year of the study through a change in accounting method, filed on IRS Form 3115. This calculator shows only the first year of service, so ask a tax professional how a later study would work for your property.
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