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Tax strategy · IRC § 168
A cost segregation study identifies the parts of a building that can be depreciated over 5, 7 or 15 years instead of 27.5 or 39. With 100% bonus depreciation now permanent, those parts can often be deducted in the first year.
Serving United States, Virginia, Washington, DC, Maryland.
What we handle
Without a study, most of a building's cost is depreciated straight-line over 39 years for commercial property or 27.5 years for residential rentals. An engineering-based study reviews plans, invoices and the property itself and assigns costs to shorter-lived categories: carpeting, cabinetry, specialty electrical and plumbing, and fixtures (5 or 7 years), and parking lots, landscaping, fencing and site utilities (15 years). For many properties, 15% to 40% of the building cost moves into these shorter classes.
Under the 2025 tax law, 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, so the reclassified 5-, 7- and 15-year property can generally be deducted in the year the building is placed in service. Properties bought in earlier years still qualify: missed depreciation can be claimed in the current year with Form 3115 as an automatic accounting method change, without amending prior returns.
Illustration: an investor buys a commercial building for $1.5 million, excluding land. Straight-line depreciation is about $38,500 a year. If a study reclassifies 25% of the cost, about $375,000, into short-lived property eligible for bonus depreciation, the first-year deduction rises to roughly $400,000. At a 37% federal rate, that is well over $130,000 in tax deferred, if the owner can use the deduction against income. Actual results depend on the property and the owner's tax situation.
Speak with an advisorWhere we help
100% bonus depreciation for qualifying property acquired after January 19, 2025, made permanent by the 2025 tax law.
The Tax Court accepted that many building components are tangible personal property with shorter lives, the foundation of cost segregation.
Missed depreciation from earlier years is claimed in the current year through an automatic change in accounting method.
Describes what the IRS expects from a quality study: qualified preparers, engineering methods and documentation.
Our approach
A senior advisor reviews your facts and documents.
Scope, fees and timeline in an engagement letter.
Returns, elections and forms prepared and reviewed.
IRS contact and planning all year.
Questions
If your question isn't here, call (703) 880-8412 and you'll reach a person.
It usually makes sense for buildings costing several hundred thousand dollars or more, excluding land, when the owner can use the deductions. We look at the property and your tax situation before recommending a study.
Yes. A look-back study lets you claim the depreciation you missed in the current year using Form 3115, with no amended returns.
Rental losses are generally passive. They can offset other income if you qualify as a real estate professional or materially participate in a short-term rental; otherwise they carry forward to offset future passive income or gain on sale.
Depreciation on the short-lived property is generally recaptured as ordinary income under section 1245, and depreciation on the building itself is taxed at up to 25%. A 1031 exchange or holding until death can defer or eliminate that tax.
A properly documented engineering-based study is a long-accepted method. The IRS Audit Techniques Guide sets out what a quality study looks like, and we use preparers who follow it.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
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