Cost Segregation Calculator
Estimate accelerated depreciation and year-1 tax savings from a cost segregation study.
How much does cost segregation save on rental property taxes?
Cost segregation typically reclassifies 15–25% of a residential building basis into 5- and 15-year buckets eligible for 100% bonus depreciation (under OBBBA, for property acquired after Jan 19, 2025). For a $450K residential rental with $360K building basis, that's roughly $100K of year-1 bonus depreciation — about $32K in federal tax savings at a 32% marginal rate, if you can use the rental loss this year.
- OBBBA restored 100% bonus depreciation for property acquired after 1/19/2025 (the binding-contract date controls); earlier acquisitions get 40% (2025), 20% (2026) or 0% (2027+), and the estimator asks
- Residential rule of thumb: ~18% to 5-year, ~10% to 15-year buckets
- Engineering study cost ($3K–$15K) is usually justified above $300K building basis
- Bonus depreciation is recaptured as ordinary income at sale; only the building's straight-line part is capped at 25%
Cost segregation sounds like a luxury tax move. It isn't. For any rental over ~$300K of building basis, skipping it is leaving 30%+ marginal tax savings on the table in year one — but only if you actually have passive income or qualify as a real estate professional to use the losses.
Real-world scenario
$450K single-family rental, 32% marginal bracket
Building basis after carving out $90K land = $360K. An engineering study reclassifies ~$65K to 5-year and ~$35K to 15-year property. Bought after Jan 19, 2025, so 100% bonus depreciation applies under OBBBA: that's roughly $100K of year-1 deductions. At 32% federal + 9% state, the cash value is ~$41K. Study cost: $6,500. Net year-one win: ~$34,500.
The part most people miss
The savings are worthless if you can't use the loss. Passive activity rules trap rental losses at the entity level unless you're a real estate professional or have offsetting passive income. Run the REPS test before paying for a study — otherwise you're just front-loading depreciation that sits suspended on Form 8582.
Cost segregation is one of the highest-ROI tax moves available to real estate investors, but the math is opaque. This estimator gives you a directional number before you commit $3,000–$15,000 to a full engineering study.
Is cost segregation worth it for my rental?
Rule of thumb: if your building basis (purchase price minus land) is above $300K and your marginal tax rate is 24%+, a full engineering study usually pays for itself many times over in year 1. This calculator estimates the upside before you commit to a study.
- •100% bonus depreciation for property acquired after Jan 19, 2025 (OBBBA); earlier acquisitions: 40% if placed in service in 2025, 20% in 2026, 0% from 2027
- •Residential: ~28% of building basis is bonus-eligible
- •Commercial: ~30% of building basis is bonus-eligible
- •Recapture at sale: bonus depreciation comes back as ordinary income
Property Details
Typically 15–25%; check your county assessor's split.
Federal + state combined.
When the property was ready and available for rent. Year one gets only the months after that.
A written binding contract signed before January 20, 2025 makes it an earlier acquisition, even if you closed later.
Bonus depreciation rate used: 100.0%
Enter property details and click Estimate to see your tax savings.
Sources & References
Primary references used for this content
How To Depreciate Property
MACRS recovery periods, conventions, and bonus depreciation
View on irs.gov
Depreciation and Amortization
Where depreciation and §179 are claimed
View on irs.gov
Accelerated cost recovery system
MACRS class lives and recovery periods
View on law.cornell.edu
✓3 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.