Investor Tools

Cost Segregation ROI Calculator

Estimate your first-year tax savings from accelerated depreciation on commercial real estate. Cost segregation studies reclassify building components into 5-year and 15-year depreciation schedules — which may deliver significant first-year tax savings depending on property-specific factors and tax situation.

Property Inputs

Purchase Price

Total acquisition cost including land — the land share is backed out below, since land never depreciates.

Land Percentage(typical 15-25%)

The land vs. improvement split on your county property appraiser's assessment is a common starting point.

Property Type

Assumes 15% to 5-year + 10% to 15-year property (25% of the building) — actual studies typically find 20–40%.

Acquisition Year

Federal bonus rate for the year placed in service — 100% is permanent for placements after Jan 19, 2025 (OBBB).

Marginal Tax Rate(federal + state combined)

Your combined marginal rate on the income these deductions offset — the higher the bracket, the more each dollar of deduction is worth.

Estimated First-Year Tax Savings

$144,205

$389,744 of accelerated year-1 deductions × 37% marginal rate. Net of an estimated $5,000 study fee: $139,205 (28.8× return on the study cost)

Reclassified basis

$400,000

25% of the building moves to 5- and 15-year schedules

Year-1 deduction

$430,769

10.5× the $41,026 straight-line baseline

Bonus depreciation

$400,000

100% of reclassified property, deducted immediately

Year 1 Deduction: Before vs. After

Straight-line only (39-year)$41,026

With cost segregation + bonus$430,769

Same property, same basis — the study only changes when you take the deductions.

Basis Allocation

Land (20% — not depreciable)$400,000

Building basis (80%)$1,600,000

5-Year Reclassification (15%)$240,000

15-Year Reclassification (10%)$160,000

Remaining Building (39-yr straight-line)$1,200,000

Year 1 Depreciation

Without Cost Segregation$41,026

With Cost Segregation$430,769

↳ Bonus on 5/15-yr property (100%)$400,000

↳ Straight-line on the rest$30,769

Accelerated Deduction$389,744

@ 37% marginal rate×

Estimated Tax Savings$144,205

How This Number Is Calculated

1.Start with the $2,000,000 purchase price and back out the 20% land allocation ($400,000) — land never depreciates. → $1,600,000 building basis
2.A study reclassifies 25% of the building into short-life property: $240,000 to 5-year + $160,000 to 15-year. → $400,000 reclassified
3.Reclassified property qualifies for bonus depreciation — 100% is deducted immediately in year one. → $400,000 bonus deduction
4.Add first-year straight-line depreciation on everything not covered by bonus ($30,769). → $430,769 total year-1 deduction
5.Compare against straight-line only: $1,600,000 ÷ 39 years = $41,026. → $389,744 accelerated
6.Multiply the accelerated deduction by your 37% marginal tax rate. → $144,205 estimated savings

If the Study Finds More — or Less

Engineering studies typically reclassify 20–40% of building value. Here is the year-1 impact across that range at your inputs:

% Reclassified	Accelerated Deduction	Tax Savings @ 37%
20%	$311,795	$115,364
25%your asset type	$389,744	$144,205
30%	$467,692	$173,046
40%	$623,590	$230,728

Estimate only — not tax advice. Year-1 figures assume a full year of depreciation (the IRS mid-month convention prorates your actual first year by closing month), typical reclassification percentages for the asset type, and bonus eligibility on all 5- and 15-year property. Accelerated depreciation defers tax rather than eliminating it — depreciation is recaptured at sale unless deferred through a 1031 exchange. Confirm your numbers with a qualified CPA and cost segregation engineer.

What Is Cost Segregation?

Cost segregation is an IRS-approved tax strategy that reclassifies components of a commercial property from the default 39-year (27.5-year for multifamily) straight-line depreciation schedule into accelerated 5-year and 15-year MACRS schedules. The result: massive first-year deductions that significantly reduce taxable income.

A licensed engineering firm conducts the study, typically identifying 20-40% of the building value as reclassifiable. For a $2M NNN property, that can mean $300K-$600K of accelerated deductions in year one. Pair this estimate with our deal analyzer to underwrite the full after-tax return before you buy.

How the Calculation Works

Every cost segregation estimate — including the one above — is the same four-step chain. Knowing it lets you sanity-check any number a study provider hands you.

1. Depreciable Basis = Purchase Price − Land Allocation2. Reclassified Basis = Depreciable Basis × Short-Life %3. Year-1 Deduction = Reclassified Basis × Bonus Depreciation Rate4. Estimated Tax Reduced = Year-1 Deduction × Marginal Tax Rate

Land is not depreciable
Only the building and its components generate depreciation, so the land portion of your purchase price comes out first. The allocation usually follows the property tax assessment or an appraisal — it is the single input that moves the answer most, and it is worth getting from your CPA rather than guessing.
The short-life percentage comes from an engineering study
This is the share of the building an engineer can defensibly move into 5-, 7-, and 15-year categories. It varies enormously by asset type — a restaurant or medical office with heavy specialty electrical and plumbing reclassifies far more than a plain warehouse shell. The calculator uses typical-range assumptions by asset type as a placeholder for the real study.
Bonus depreciation decides how much lands in year one
Without bonus depreciation, reclassified property still depreciates faster than 39 years, but it spreads across 5, 7, and 15 years. Bonus depreciation is what compresses it into the acquisition year.
The deduction is not the savings
A deduction reduces taxable income; what it is worth to you depends on your marginal rate. And it is a deferral, not a discount — the tax comes back as depreciation recapture when you sell, unless the sale is structured as a 1031 exchange.

5-Year Property

Personal property components that can be reclassified from the building:

• Decorative lighting, fixtures
• Removable carpeting & flooring
• Specialty electrical (process equipment)
• Specialty plumbing (commercial kitchens)
• Cabinetry, millwork
• Furniture & equipment

15-Year Property

Land improvements that can be depreciated over 15 years:

• Paving & parking lots
• Site lighting
• Landscaping & irrigation
• Signage
• Site drainage
• Fencing & walls

39-Year Property

Structural components remaining on the standard schedule:

• Foundation & structure
• Roof & walls
• HVAC (primary systems)
• Primary electrical
• Primary plumbing
• Elevators

Who Benefits Most From Cost Segregation?

•Real Estate Professionals (IRS definition) — can offset passive losses against active income
•High-income active investors with passive income from other properties
•Owners of $500K+ commercial properties (study ROI breaks even around this threshold)
•Recent buyers who can apply cost seg retroactively (catch-up depreciation)

2026 Bonus Depreciation: Back to 100%

The rules changed in 2025. The One Big Beautiful Bill (OBBB), signed into law July 4, 2025, made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025 — reversing the Tax Cuts and Jobs Act phase-down that had been stepping the rate toward zero (it had reached 40% for early-2025 placements).

Property placed in service after Jan 19, 2025

100% bonus depreciation

With 100% bonus depreciation restored, a cost segregation study lets you write off the reclassified 5-, 7-, and 15-year property in full in year one. When you eventually sell, a 1031 exchange can defer the depreciation recapture those deductions create. Bonus depreciation rates and their transition rules move with legislation, so confirm the rate that applies to your placed-in-service date — and your specifics — with a qualified CPA.

Worked Example: A $3M Commercial Building

The figures below are a hypothetical illustration of the arithmetic, not a quote, a projection, or a statement about any real property. The land allocation, reclassification percentage, and marginal rate are all assumptions — yours will differ, and only an engineering study and your CPA can set them.

Purchase price	$3,000,000
Less land allocation (assumed 20%)	−$600,000
Depreciable basis	$2,400,000
Reclassified to 5/7/15-year (assumed 25%)	$600,000
Remaining 39-year structure	$1,800,000

Now compare the first year with and without the study, assuming a full year of depreciation and 100% bonus depreciation on the reclassified property:

Without a study — $2,400,000 ÷ 39 years	$61,538
With a study — $600,000 bonus depreciation	$600,000
With a study — $1,800,000 ÷ 39 years	$46,154
Year-1 deduction with a study	$646,154
Additional deduction created	$584,615

Turning the deduction into an estimate of tax reduced

At a hypothetical 35% combined marginal rate, the additional $584,615 deduction reduces tax by roughly $204,615. Net a study fee at the middle of the $5K–$15K range the industry typically charges — call it $12,000 — and the illustrative first-year benefit is about $192,600.

Three caveats this simplified example glosses over. The IRS mid-month convention prorates your actual first year based on the month you close, so a December acquisition captures far less than this full-year figure. The reclassified basis still depreciates in later years without bonus depreciation, so the study shifts timing rather than creating deductions from nothing. And whether you can actually use a loss this size against your other income depends on passive activity rules that turn on your own circumstances. Your CPA has to answer all three.

Cost Segregation FAQs

What is cost segregation in commercial real estate?

Cost segregation is an engineering-based study that reclassifies portions of a commercial property from 39-year depreciation into shorter 5-, 7-, and 15-year asset categories. This accelerates depreciation deductions and typically front-loads 20–30% of the purchase price into the first year.

How do you calculate cost segregation tax savings?

Four steps. First, subtract the land allocation from the purchase price, because land is not depreciable — what remains is your depreciable basis. Second, multiply that basis by the share the study reclassifies into 5-, 7-, and 15-year categories. Third, apply the bonus depreciation rate to that reclassified amount to get the first-year deduction. Fourth, multiply the deduction by your marginal tax rate to estimate the tax reduced. The calculator above runs these four steps on your inputs; only a real engineering study and your CPA can set the actual percentages.

How does bonus depreciation work with cost segregation?

Bonus depreciation lets you deduct 100% of qualifying short-life assets (5-, 7-, and 15-year property) in the year of acquisition. Combined with a cost segregation study, it can shelter substantial taxable income in year one. The One Big Beautiful Bill (signed July 4, 2025) made 100% bonus depreciation permanent for property acquired and placed in service after January 19, 2025, reversing the earlier TCJA phase-down.

When does cost segregation make financial sense?

Cost segregation typically pays for itself when the property is worth $500K+ and the owner has substantial taxable income to shelter. Studies cost $5K–$15K and generate first-year deductions of $200K+ on a $1M property.

Does cost segregation work on multifamily and residential rental property?

Yes. The default schedule for residential rental property is 27.5 years rather than the 39 years used for commercial buildings, but the same logic applies: an engineering study separates 5-, 7-, and 15-year components — appliances, cabinetry, removable flooring, site paving, landscaping — from the structure itself so they can be depreciated on a shorter schedule.

What is depreciation recapture and how does it affect cost segregation?

When you sell, accumulated depreciation is recaptured and taxed as ordinary income (up to 25% for real property). However, a 1031 exchange defers all recapture, and the time-value benefit of accelerated deductions usually outweighs the eventual recapture cost.

Can I use cost segregation on a property I already own?

Yes. A look-back study can be performed on properties owned for years, and the missed depreciation is captured via Form 3115 (Application for Change in Accounting Method) without needing to amend prior tax returns. This creates a single large catch-up deduction in the current year.

Related Tools & Reading

What the calculator assumes

• Reclassification percentages are typical-range assumptions by asset type — an actual engineering study (which typically finds 20–40% of building value) sets the real number.
• Year-1 figures assume a full year of depreciation; the IRS mid-month convention prorates your actual first year based on the month you close.
• The study fee is estimated within the typical $5K–$15K range.
• Tax savings shown are a deferral, not a permanent reduction — depreciation is recaptured at sale unless deferred through a 1031 exchange.

Disclaimer: This calculator provides estimates for educational purposes only. Actual cost segregation results depend on a detailed engineering study, property-specific components, and current tax law. Reclassification percentages shown are typical ranges and vary significantly by property. Not tax advice. Consult a qualified CPA and cost segregation specialist before making decisions based on these estimates. MaxLife Commercial does not provide tax or legal advice.

Tax Strategy

Cost Segregation Tax Savings

Planning a CRE Acquisition?

MaxLife Commercial sources commercial real estate across Florida with strong cost segregation potential. We work with qualified CPAs and cost seg specialists to help clients maximize tax benefits.

Find a Property Deal Analyzer

Related Investor Tools

Free institutional-grade calculators from MaxLife Commercial.