Imagine someone hands you a key to a room full of cash. The money is yours, but you only have a limited time to claim it. Once that window closes, the key disappears forever. Would you wait? Most people wouldn’t.
That is the opportunity many commercial and multifamily property owners have today.
The One Big Beautiful Bill (OBBB), signed into law in 2025, permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. After years of phased reductions, property owners can once again deduct the full cost of qualifying assets in the year they are placed into service.
As a result, cost segregation studies have become significantly more valuable. Therefore, if you own commercial real estate and have not explored a cost segregation study, you could be leaving substantial tax savings on the table.
Why Cost Segregation Matters More Than Ever
A cost segregation study identifies building components that qualify for shorter depreciation lives instead of the standard 39-year schedule used for most commercial buildings.
Instead, the study separates qualifying assets into 5-year, 7-year, or 15-year property classifications.
Examples include:
- Decorative and specialty lighting
- Carpet and certain flooring materials
- Custom cabinetry and millwork
- Dedicated plumbing and electrical systems
- Certain land improvements
- Security and alarm systems
Because of this, these assets may qualify for 100% bonus depreciation under current law.
For example, imagine a study identifies $500,000 in qualifying assets. Rather than depreciating that amount over decades, current tax law may allow you to deduct the entire $500,000 in the first year, assuming the assets qualify.
By comparison, without bonus depreciation, the same assets might generate only about $12,820 in annual depreciation over 39 years.
For an owner in a 35% tax bracket, a $500,000 first-year deduction could produce approximately $175,000 in first-year tax savings. However, this example is for illustration only, and actual results depend on your property’s facts and your individual tax situation. Therefore, always consult your CPA or tax advisor.
How Cost Segregation and Bonus Depreciation Work
Step 1: Complete the Engineering Study
A quality cost segregation study begins with a detailed engineering analysis.
During the study, engineers inspect the property and identify assets that qualify as 5-year, 7-year, or 15-year property instead of 39-year structural components.
Commonly reclassified assets include:
- Decorative and specialty lighting
- Carpet, vinyl flooring, and wall coverings
- Custom cabinetry, countertops, and millwork
- Specialized electrical systems
- Alarm and security systems
- Parking lots, curbs, and fencing
- Landscaping and irrigation systems
In many studies, approximately 15% to 30% of a property’s depreciable basis qualifies for reclassification. However, every property is different, so results vary.
Step 2: Apply 100% Bonus Depreciation
After the engineering study identifies qualifying assets, those assets may qualify for 100% bonus depreciation under current tax law.
Consequently, instead of spreading deductions over many years, eligible property can often be fully deducted during the year it is placed into service. As a result, first-year depreciation increases significantly while cash flow improves.
Step 3: Recover Missed Depreciation with a Look-Back Study
You do not need to purchase a new property to benefit from cost segregation.
Instead, if you already own commercial real estate, a look-back study may allow you to recover depreciation you previously missed.
Using IRS Form 3115, qualifying property owners may claim missed depreciation without amending prior tax returns.
In addition, the IRS Cost Segregation Audit Techniques Guide provides guidance for preparing studies that comply with IRS expectations. Therefore, working with an experienced engineering firm helps ensure your study can withstand IRS review.
Example: $3 Million Office Building
Suppose you purchase an office building with a depreciable basis of $3 million.
Using traditional straight-line depreciation, you would deduct roughly $77,000 annually.
Now, consider a cost segregation study.
The engineering analysis identifies approximately $600,000 of assets eligible for accelerated depreciation.
With 100% bonus depreciation available, that entire $600,000 may become deductible during the first year.
As a result, total first-year depreciation could increase to approximately $677,000.
Assuming a 35% effective tax rate, that could generate roughly $237,000 in tax savings during year one, compared to approximately $27,000 under standard straight-line depreciation.
Again, this example is for illustration only. Actual tax savings depend on the property’s characteristics, ownership structure, and applicable tax rules.
Choosing the Right Cost Segregation Company
Not every cost segregation study provides the same level of quality.
Before choosing a provider, look for a company that:
- Employs qualified engineers
- Performs an on-site property inspection
- Has experience with your property type
- Follows current IRS guidance
- Produces detailed engineering documentation
- Works collaboratively with your CPA
- Provides realistic turnaround times, typically four to eight weeks
Although low-cost studies may seem attractive, thorough engineering documentation often delivers greater long-term value and stronger audit support.
When Should You Act?
Current law allows qualified property placed in service after January 19, 2025, to benefit from 100% bonus depreciation.
Therefore, if you recently purchased, constructed, or substantially renovated commercial property, now is an excellent time to evaluate whether a cost segregation study makes financial sense.
Likewise, if you purchased property years ago and never completed a study, a Form 3115 look-back study may allow you to recover missed depreciation immediately.
The earlier you accelerate depreciation, the sooner you improve cash flow.
Additionally, that increased liquidity can help fund acquisitions, renovations, debt reduction, or future investments.
Get a Free Benefit Analysis
Wondering how much your property could benefit?
SegPro Solutions offers a free benefit analysis that estimates the potential value of a cost segregation study before you commit.
As a result, you can better understand the potential tax savings available for your property before making a decision.
If the projected benefits make sense, our team can work alongside your CPA to determine the best strategy for maximizing your available depreciation deductions.
Frequently Asked Questions
Is 100% Bonus Depreciation Permanent?
The OBBB restored 100% bonus depreciation for qualified property placed in service after January 19, 2025. However, Congress can change tax laws in the future. Therefore, always verify current rules with your CPA or tax advisor.
Can I Perform a Study on Property Purchased Several Years Ago?
Yes. A look-back study using IRS Form 3115 may allow you to claim previously missed depreciation without amending prior tax returns, provided your property qualifies.
Will a Cost Segregation Study Increase My Audit Risk?
A professionally prepared cost segregation study that follows IRS guidance does not automatically increase audit risk. Instead, high-quality engineering documentation helps support the study if questions arise.
What Is the Difference Between Cost Segregation and Bonus Depreciation?
Cost segregation identifies building components that qualify for shorter depreciation schedules. Meanwhile, bonus depreciation determines how much of those qualifying assets may be deducted immediately under current tax law.
What Types of Buildings Benefit Most?
Many commercial properties may qualify, including:
- Office buildings
- Multifamily apartment communities
- Retail centers
- Warehouses
- Hotels
- Medical offices
Generally, properties with acquisition or construction costs of $750,000 or more produce the greatest benefit. However, every property is unique. Therefore, a free benefit analysis from SegPro Solutions can help determine whether your building is a strong candidate for a cost segregation study.
