How cost segregation works
An engineering-based study identifies parts of a building, such as certain electrical, flooring, cabinetry, and site improvements like parking lots and landscaping, that qualify for shorter recovery periods than the building itself.
Bonus depreciation after the 2025 law
The 2025 tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Components reclassified to 5-, 7- or 15-year lives can generally be deducted in full in the year the property is placed in service.
Already own the building?
A "look-back" study on a property you bought in a prior year can capture the missed depreciation in the current year through an accounting method change (Form 3115), without amending old returns.
Things to weigh
- Passive loss limits may prevent you from using the deductions right away, unless you qualify as a real estate professional or the property is a short-term rental you materially participate in.
- Recapture: when you sell, depreciation on reclassified components can be taxed as ordinary income.
- State differences: New Jersey and New York generally don't follow federal bonus depreciation, so state deductions are spread out.
- Cost: studies make the most sense for properties large enough that the accelerated deductions outweigh the fee.
Frequently asked questions
Is cost segregation worth it?
It's most valuable for larger properties where the accelerated deductions, especially with 100% bonus depreciation, outweigh the study's cost and you can use the losses.
Can I do cost segregation on a building I bought years ago?
Yes. A look-back study lets you catch up missed depreciation in the current year through an accounting method change, without amending prior returns.
Is bonus depreciation 100% again?
Yes. The 2025 tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025.
Do New Jersey and New York allow bonus depreciation?
Generally no. Both states decouple, so state depreciation is spread over a longer period.