Millions of tax deductions found. Millions of square feet analyzed. Millions of tax savings for our client.
What is a cost segregation study?
A cost segregation study is a tax analysis that identifies and reclassifies certain components of a real estate property into shorter depreciation categories. Instead of depreciating the entire building over 27.5 years for residential rental property or 39 years for commercial property, eligible components may be depreciated over shorter periods, such as 5, 7, or 15 years.
For real estate investors, this can accelerate depreciation deductions, reduce taxable rental income, and improve cash flow earlier in the ownership period.
First-Year Impact
$114,545
First-year depreciation with a cost segregation study in this example.
Without Cost Seg
$18,181
Added Year 1 Deduction
$96,364
Why investors use cost segregation
By identifying 5-year, 7-year, and 15-year components within a property, investors can front-load depreciation deductions and create meaningful tax savings early in the hold period.
Illustrative example based on a $500,000 rental property and 100% bonus depreciation where eligible. Actual results vary by property, tax position, and placed-in-service date.
Who benefits from a cost segregation study?
A cost segregation study may be beneficial if you:
- Own residential rental property, commercial real estate, or short-term rental property
- Recently purchased, constructed, renovated, or expanded a property
- Have a depreciable building basis that is large enough to justify the study cost
- Generate taxable rental income or have passive income that can be offset
- Want to improve cash flow during the early years of property ownership
- Need a tax strategy that supports long-term real estate portfolio growth
When a cost segregation study may not make sense
A study may not be worthwhile if the property has a low depreciable basis, limited tax liability, limited passive income, if the expected tax savings do not exceed the cost of the study, or if you plan on immediately selling the property.
The Cost Segregation Process
Step 1:
Review the property and tax situation
Hall CPA reviews the property type, purchase price, land allocation, depreciation history, renovations, and tax goals to determine whether a cost segregation study makes sense.
Step 2:
Identify the depreciable building basis
The property value is allocated between land and building because land is not depreciable. The building basis is then used to evaluate potential depreciation opportunities.
Step 3: Perform the cost segregation analysis
Eligible building components are identified and reclassified into shorter recovery periods, such as 5-year, 7-year, or 15-year property, where appropriate.
Step 4: Apply the results to the tax strategy
The study results are used to calculate accelerated depreciation deductions and evaluate how those deductions affect taxable income, cash flow, and future tax planning.
Step 5: Implement and document the deduction
Hall CPA helps ensure the study is properly reflected in the investor’s tax filings and supported by appropriate documentation.
Example of Cost Segregation Tax Savings
In this example, you would be able to deduct the entire $60,000 of 5-year property and $40,000 of 15-year property immediately, along with roughly $14,545 of straight-line depreciation from the 27.5-year portion. Altogether, that gives you $114,545 in first-year depreciation compared to just $18,181 without a cost segregation study.
That's a $96,364 increase in first-year deductions, which directly reduces taxable rental income.
| Property Class | Value | Depreciation Method | First-Year Depreciation |
|---|---|---|---|
| 5-year property | $60,000 | 100% Bonus | $60,000 |
| 15-year property | $40,000 | 100% Bonus | $40,000 |
| 27.5-year property | $400,000 | Straight-line | $14,545 |
| Total Year 1 Depreciation | — | — | $114,545 |
| Without Cost Segregation Study | $500,000 | Straight-line | $18,181 |
| Difference | — | — | $96,364 |
Cost Segregation Explained
Learn how reclassifying property components and using bonus depreciation can create immediate write-offs from Cost Segregation Director, Edward Griffith.
Can you do a cost segregation study on a property you already own?
Yes. A cost segregation study can often be completed for a property that was purchased, built, or renovated in a prior year. This is commonly referred to as a look-back or retroactive cost segregation study.
In many cases, investors may be able to claim missed depreciation through a change in accounting method rather than amending prior-year returns. This can create a catch-up depreciation deduction in the current tax year.
Why work with Hall CPA for cost segregation?
Hall CPA specializes in tax strategy for real estate investors. Our team helps investors evaluate whether cost segregation makes sense, estimate the potential tax benefit, execute the study, and integrate the results into a broader real estate tax plan.
Frequently Asked Questions
You likely need a cost segregation study if you:
- Own rental or commercial property
- Purchased, constructed, or renovated property
- Have a building value generally over $300,000 (varies case by case)
If you're unsure, we can help determine if it makes sense for your situation.
We have a proven track record.
Tax Liability Reduced by:
$285,000+
“Brian and Susan went from overpaying in taxes to massive deductions through cost segregation and strategic planning.”
Brian and Susan were high-income professionals in the 37% tax bracket with a growing real estate portfolio, but no prior tax strategy. By qualifying Susan as a Real Estate Professional and implementing cost segregation studies across their properties, we unlocked over $1.5M in depreciation.
Brian & Susan — High-Income W-2 + Real Estate Investors
Tax Liability Reduced by:
$130,000+
“Casey didn’t need a large portfolio—just the right cost segregation strategy.”
"Despite earning over $550K annually, Casey believed meaningful tax savings required scaling her portfolio. Instead, we used a short-term rental strategy combined with a retroactive cost segregation study to unlock powerful deductions from a single property. The result: $130K in tax savings and a significant reduction in her W-2 tax burden, all without acquiring additional properties."
Casey — High-Income W-2 Earner & STR Owner
Tax Liability Reduced by:
$80,0000+
“One property and one cost segregation strategy turned trapped corporate cash into usable, tax-free income.”
"Neil and Amanda owned multiple STRs and had nearly $1M stuck in a C-Corp. By applying cost segregation to a single property, we eliminated $100K in taxable income. This created the opportunity to access $80K from their corporation tax-free using the 0% capital gains bracket—while also saving ~$25K in taxes."
Neil & Amanda — Short-Term Rental Investors