Calculators › Cost Segregation Estimator

Cost Segregation Estimator

Read first: whether you can actually use this deduction against your other income depends on the passive-loss rules (material participation, the short-term-rental rules, or real-estate-professional status). This is an illustration of the potential first-year deduction, not confirmation that it applies to you.

A cost segregation study reclassifies the short-life parts of a building into 5, 7, and 15-year property, which 100% bonus depreciation can then write off in year one. This estimates that first-year deduction and the tax it could save. It updates as you type.

Illustration only, not a cost segregation study or tax advice. Real allocations require an engineering study, the deduction may be limited by the passive-loss rules, and the accelerated components increase depreciation recapture at sale. Bonus depreciation figures reflect current OBBBA rules. Consult a CPA. Last reviewed August 11, 2026.

Who can actually use this deduction

The number above is the deduction a study could produce. Whether it offsets your W-2 or other active income is a separate question. Rental losses are generally passive, and passive losses usually only offset passive income unless you materially participate as a real estate professional, or the property is a short-term rental where the average stay is seven days or less and you materially participate. Many high earners buy a short-term rental specifically for this reason. If none of those apply, the deduction still shelters the property's own income and carries forward, but it will not wipe out your salary's tax bill.

A worked example

On a $600,000 single-family rental with 20% land, the depreciable building basis is $480,000. Reclassify 20% of that, or $96,000, into short-life property, and 100% bonus depreciation writes off the full $96,000 in year one. At a 32% marginal rate that is about $30,720 of tax saving, versus roughly $14,000 of ordinary straight-line depreciation on the shell. The difference is timing pulled forward, not free money.

The trade-off at sale

Front-loading depreciation increases what you owe later. The reclassified 5, 7, and 15-year components are Section 1245 property, and their depreciation recaptures as ordinary income when you sell, with no 25% cap. Model the exit before you commit. The depreciation recapture estimator handles that side, and the OBBBA tax changes explain the bonus-depreciation rules behind this tool.