Cost Segregation Tax Savings Calculator 2026 β Accelerated Depreciation
Calculate Year 1 tax savings from a cost segregation study on commercial or residential rental property. Compare accelerated depreciation vs straight-line with 40% 2026 bonus depreciation.
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Exclude land value β only depreciable basis %
Federal + state combined marginal rate Cost Segregation Allocation (% of depreciable basis)
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Carpet, fixtures, appliances β typically 15β20% %
Parking, landscaping, site work β typically 8β15% Property size:
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Year 1 Tax Savings
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Year 1 Depreciation (with study)
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Year 1 Depreciation (without)
$0
Additional Year 1 Deduction
Cost Segregation Analysis
How Cost Segregation Works
By default, commercial buildings are depreciated over 39 years and residential rentals over 27.5 years. A cost segregation study reclassifies components to shorter lives β 5, 7, or 15 years β allowing dramatically larger deductions in early years. Combined with bonus depreciation, Year 1 deductions can be 5β10x higher than straight-line.
Depreciation Formula
Without cost seg: Annual depreciation = Property basis Γ· 39 (or 27.5) years
With cost seg (2026, 40% bonus):
5-year property: (allocation% Γ basis) Γ 40% immediate + 60% Γ· 5 years
15-year property: (allocation% Γ basis) Γ 40% immediate + 60% Γ· 15 years
Remaining: basis Γ (1 β 5yr% β 15yr%) Γ· 39 years (or 27.5)
Year 1 Tax Savings = Additional deduction Γ marginal tax rate
With cost seg (2026, 40% bonus):
5-year property: (allocation% Γ basis) Γ 40% immediate + 60% Γ· 5 years
15-year property: (allocation% Γ basis) Γ 40% immediate + 60% Γ· 15 years
Remaining: basis Γ (1 β 5yr% β 15yr%) Γ· 39 years (or 27.5)
Year 1 Tax Savings = Additional deduction Γ marginal tax rate
Extended
5-Year Depreciation Schedule Comparison
Side-by-side depreciation schedule: cost segregation vs straight-line over 5 years
Year-by-year depreciation comparison: with cost segregation vs straight-line. Shows cumulative tax savings over 5 years.
| Year | With Cost Seg | Without Cost Seg | Annual Advantage | Cumulative Savings |
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Frequently Asked Questions
What is a cost segregation study and who needs one?
A cost segregation study is an engineering-based analysis that reclassifies components of a commercial or investment real estate property from 39-year (commercial) or 27.5-year (residential rental) depreciation to faster 5-year, 7-year, or 15-year MACRS categories. Ideal candidates: commercial properties purchased for $500,000+; new construction or major renovations; residential rental properties above $250,000; and owners who can use the additional deductions (active real estate professionals or high-income passive investors). Studies typically cost $5,000β$20,000 and can generate $50,000β$500,000+ in Year 1 tax deductions.
What types of property qualify for shorter depreciation lives?
5-year personal property (MACRS): carpet, appliances, individual office furniture, certain fixtures, technology, and specialized equipment. 7-year personal property: office furniture attached to walls, some manufacturing equipment. 15-year land improvements: parking lots, sidewalks, landscaping, outdoor lighting, fences, retaining walls, and site utilities. The remaining cost stays in 39-year (commercial) or 27.5-year (residential rental) real property. A study typically identifies 15β30% in 5/7-year property and 10β15% in 15-year property.
How does bonus depreciation affect cost segregation in 2026?
Bonus depreciation (Section 168(k)) allows immediate expensing of a percentage of qualified property in the year it is placed in service. In 2026, bonus depreciation is 40% (down from 60% in 2024β2026 under OBBBA extension, and originally 100% in 2022). This means 5-year and 15-year assets identified in a cost segregation study can have 40% of their value immediately deducted, with the remaining 60% depreciated over their MACRS life. Without cost segregation, assets stay in 39/27.5-year categories and get only 40% of those amounts β far less in Year 1.
Can I do cost segregation on a property I purchased years ago?
Yes. Under Revenue Procedure 2011-14, you can perform a "look-back" cost segregation study on a property placed in service in any prior year without amending prior tax returns. You file a Form 3115 (Application for Change in Accounting Method) in the year you perform the study and take a catch-up deduction (Section 481(a) adjustment) for all prior-year depreciation you could have taken. This is often called a "retroactive cost segregation study" and can generate a large one-time deduction even for properties owned for 10+ years.
What are the tax savings from a cost segregation study vs straight-line depreciation?
The savings depend on your tax rate, property value, and allocation percentages. Example: $2 million commercial property placed in service in 2026. Without cost seg: $2M Γ· 39 years = $51,282/year. With cost seg: 20% identified as 5-year ($400K) and 10% as 15-year ($200K). Bonus depreciation on 5-year: $400K Γ 40% = $160,000 immediate; remaining $240K over 5 years ($48K/yr). 15-year: $200K Γ 40% = $80,000 immediate; $120K over 15 years. Plus $1.4M at straight-line. Year 1 total: ~$291,282 vs $51,282 = $240,000 additional Year 1 deduction = ~$84,000 tax savings at 35%.