Cost Segregation Calculator: Estimate Your First-Year Deduction
Estimate your cost segregation savings
Pick your property type and enter a price. The reclassification share defaults to a typical result for that type; adjust it if you have a quote or a prior study.
Bonus rate follows the date you acquired the property and the year it was placed in service. Building portion uses straight-line, mid-month. Reclassified property not covered by bonus is estimated at a blended 10% in year one, and the mid-quarter convention is ignored. Placed in service in an earlier year? A look-back study can usually catch up the missed depreciation in the current year. *Tax value assumes you can use the deduction this year; passive activity rules often limit rental losses. A real study, done by engineers, sets the actual numbers. Estimates only, not tax advice.
See where this fits in your tax system: book a Discovery Call →How does this cost segregation estimate work?
- Building basis. Price minus land, since land can’t be depreciated.
- Without a study. The whole building is depreciated straight-line over 27.5 or 39 years, with a partial first year under the mid-month convention.
- With a study. The reclassified share gets bonus depreciation in year one; the rest of the building stays on the 27.5- or 39-year schedule.
- The difference is the extra deduction. Multiplying by your bracket shows its rough tax value, if you can use it this year.
What bonus depreciation rate applies to your property?
The rate depends on two dates: when you acquired the property (generally when a binding contract was signed) and the year it was placed in service. Bonus depreciation applies only to the reclassified 5-, 7- and 15-year property, never to the building itself.
| Year placed in service | Acquired before Sept. 28, 2017 | Acquired Sept. 28, 2017 – Jan. 19, 2025 | Acquired after Jan. 19, 2025 |
|---|---|---|---|
| 2017 | 50% | 100% | — |
| 2018 | 40% | 100% | — |
| 2019 | 30% | 100% | — |
| 2020–2022 | 0% | 100% | — |
| 2023 | 0% | 80% | — |
| 2024 | 0% | 60% | — |
| 2025 | 0% | 40% | 100% |
| 2026 | 0% | 20% | 100% |
| 2027 and later | 0% | 0% | 100% |
The 2017 Tax Cuts and Jobs Act set 100% bonus depreciation with a phase-down starting in 2023. The One Big Beautiful Bill Act made 100% permanent, but only for property acquired after January 19, 2025. Property bought before then keeps the old phase-down rate, even if it is placed in service later.
What does a cost segregation study reclassify?
- 5-year property: carpet and some flooring, appliances, cabinetry and countertops in many rentals, furniture in furnished rentals, and certain decorative lighting and finishes.
- 7-year property: office furniture and certain equipment, more common in commercial buildings.
- 15-year property: land improvements such as driveways, parking areas, sidewalks, fencing, landscaping, outdoor lighting and pools.
The IRS describes acceptable methods in its Cost Segregation Audit Techniques Guide. A detailed, engineering-based study that follows it is the strongest support. Read more on our cost segregation page.
Illustrative example: a $600,000 short-term rental
Illustrative example — Airbnb bought for $600,000, placed in service in March
- Land 20%: building basis $480,000.
- Without a study (39 years, 9.5 months): about $9,744 in year one.
- Study reclassifies 32%, or $153,600, all eligible for 100% bonus depreciation.
- Remaining $326,400 on the 39-year schedule: about $6,626. Year one with the study: about $160,226.
- Extra first-year deduction: about $150,482. In the 35% bracket that is roughly $52,669 of federal tax, if the losses are usable.
Figures are illustrative only; your result depends on your facts.
Can you actually use the deduction?
This is the question that decides whether a study pays off this year. Rental losses are passive by default and generally only offset passive income. Two common exceptions:
- The short-term rental loophole: if the average stay is 7 days or less and you materially participate, the losses can offset W-2 and business income.
- Real estate professional status: for long-term rentals, if you or your spouse qualify and materially participate.
Losses you can’t use this year carry forward, and are generally released when you sell the property. Already own the property? A look-back study can catch up missed depreciation without amending returns.
What happens when you sell?
Faster depreciation means more recapture later: 5- and 7-year property is recaptured at ordinary rates, and building depreciation at up to 25%. For most investors the time value of the early deduction still wins, especially if you plan a 1031 exchange. Model the exit with the depreciation recapture calculator.
How to get started
We help investors decide whether a study fits, coordinate the engineering study, and make sure the losses are usable. Book a free Discovery Call with Roger T. Herring, MSCTA, or call (678) 690-5228.
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Roger T. Herring, MSCTA
The Citadel ’91, former U.S. Army Reserve officer, and a corporate career from staff accountant to CFO before founding Investors Accounting to help real estate investors keep more of what they earn. Author of Real Estate Tax Killers, The Real Estate Investing Tax Blueprint and Secrets of the Short Term Rental.
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