Yes — a cost segregation study can significantly reduce your tax bill by accelerating the depreciation on parts of your property so you get larger deductions sooner rather than waiting decades.
Under the standard IRS rules found in 26 U.S.C. § 168, commercial property depreciates over 39 years and residential rental property depreciates over 27.5 years using straight-line depreciation. That slow pace is the core problem. Every year that you leave money sitting in a 39-year bucket, you lose the time value of those deductions — meaning you could have invested that cash years earlier.
The good news? A cost segregation study separates your building into its components and moves many of them into 5-, 7-, or 15-year depreciation schedules — or even lets you deduct them all in year one through bonus depreciation. And thanks to the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, 100% bonus depreciation has been permanently restored for qualified property placed in service after January 19, 2025, making this strategy more powerful than it has been in years.
Here’s a striking fact: for every $1 million spent on qualifying real estate, a well-executed cost segregation study can generate between $30,000 and $200,000 in federal tax benefits. Across properties worth $1 million to $5 million, first-year tax savings average between $40,000 and $200,000.
In this article, you will learn:
💡 Exactly what a cost segregation study is and the specific tax law that makes it work
📊 Real examples with dollar amounts showing how much you can actually save
⚠️ The passive activity loss trap that can make the whole thing useless for some investors
🔄 How to claim missed deductions on properties you’ve owned for years using a look-back study
❌ The most dangerous mistakes that lead to IRS audits and lost deductions
What Is a Cost Segregation Study?
A cost segregation study is an engineering-based tax analysis that breaks a real property into its individual components and assigns each component the shortest legal depreciation period allowed by the IRS. Instead of treating your building as one big asset that slowly loses value over 27.5 or 39 years, a qualified professional physically inspects your property and separates it — on paper — into dozens or even hundreds of individual assets.
The legal foundation sits in IRC § 168, which governs the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, property is assigned to class lives ranging from 5 years to 39 years. The key insight is that not every part of a building belongs in the 27.5- or 39-year bucket. Many components — flooring, cabinetry, electrical systems tied to a specific use, landscaping, parking lots — legally belong in shorter class lives, and the IRS has confirmed this through its own Cost Segregation Audit Techniques Guide.
The result is front-loaded deductions. A cost segregation study doesn’t create new deductions; it borrows from future years and moves them into earlier years. That time shift is worth real money because a dollar of tax savings today is worth more than a dollar of savings in year 35.
The Law Behind It: Why the IRS Allows This
Cost segregation wasn’t invented by a tax promoter — it was established by the courts. In Shainberg v. Commissioner (1959), courts first recognized that a taxpayer could separately depreciate parts of a building. The strategy evolved and was later confirmed by what is still the controlling case today.
In Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997), the U.S. Tax Court ruled that certain building components used in connection with hospital operations were personal property — not structural components. The IRS later acquiesced in Action on Decision AOD 1999-008, formally accepting the application of these principles to cost segregation studies. In 2004, the IRS released its own Cost Segregation Audit Techniques Guide — a roadmap that tells both taxpayers and IRS agents exactly what a valid study must include.
The AmeriSouth XXXII, Ltd. case (T.C. Memo. 2012-67) shows what happens when studies are done poorly. In that case, a partnership purchased an apartment complex for over $10 million and attempted to reclassify more than 1,000 components over 5- and 15-year lives. The IRS denied over $1 million in deductions — not because cost segregation is invalid, but because the study lacked proper documentation and even claimed depreciation on assets the taxpayer didn’t own. The lesson: the method and documentation matter enormously.
What Gets Reclassified — and Over How Many Years?
When a cost segregation specialist reviews your property, they divide every component into one of four groups. The key is that anything that is not a structural component of the building may qualify for a shorter life.
Here is how the IRS classifies typical assets found in a cost segregation study:
| Asset | Standard Life | Reclassified Life |
|---|---|---|
| Building structure / shell | 27.5 or 39 years | Stays 27.5 or 39 years |
| Carpet, vinyl tile, wood flooring | 27.5 or 39 years | 5 years |
| Cabinetry, countertops, decorative moldings | 27.5 or 39 years | 5 years |
| Specialty lighting, dedicated outlets | 27.5 or 39 years | 5 years |
| Appliances, break room sinks | 27.5 or 39 years | 5 years |
| Office furniture | 27.5 or 39 years | 7 years |
| Parking lots, sidewalks, landscaping | 27.5 or 39 years | 15 years |
| Drainage pipes, outdoor pools, bollards | 27.5 or 39 years | 15 years |
The 5- and 7-year assets are classified as § 1245 personal property, and the 15-year assets are land improvements. Both categories are eligible for bonus depreciation — meaning if your property qualifies, you can deduct 100% of these costs in year one rather than spreading them across 5, 7, or 15 years.
Studies typically reclassify 20 to 40 percent of a building’s purchase price into these shorter-lived categories. Specialized buildings like manufacturing facilities, restaurants, and medical offices often see even higher percentages because they contain more purpose-built equipment and systems.
The Bonus Depreciation Turbocharge (2025 and Beyond)
Cost segregation on its own is powerful — but paired with bonus depreciation, the savings can be dramatic. Before the OBBBA, bonus depreciation was scheduled to fully expire by 2027, phasing down from 100% in 2022 to 40% in 2025. President Trump’s signing of the One Big Beautiful Bill Act on July 4, 2025 permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.
This is what that means in plain terms: every dollar you reclassify into a 5-, 7-, or 15-year category through cost segregation can be deducted 100% in year one — not spread over five or fifteen years, but all at once. For a high-income taxpayer in the 37% bracket, a $1 million reclassification becomes a $370,000 reduction in federal taxes in the year you place the property in service.
Here is a concrete comparison of the old law versus the new law for a $3 million retail center:
| Scenario | 5/15-Year Property Identified | Bonus Depreciation Rate | Year-One Deduction |
|---|---|---|---|
| Pre-OBBBA (old 40% rate) | $1,200,000 | 40% | $480,000 |
| Post-OBBBA (current 100% rate) | $1,200,000 | 100% | $1,200,000 |
| Additional tax savings at 37% bracket | — | — | $266,400 |
One important detail: property acquired under a binding contract signed before January 20, 2025 and placed in service after that date must use the pre-OBBBA phase-down rate of 40% for 2025. The contract date matters for new construction and acquisitions.
Real Examples: The Numbers in Action
Scenario 1: Commercial Office Building Purchase ($5 Million)
Marcus, a real estate investor, buys a commercial office building for $5 million. Under the default rules, the entire depreciable basis is depreciated over 39 years, giving him roughly $128,000 per year in depreciation deductions. His CPA suggests a cost segregation study.
| What Happened | Result |
|---|---|
| Cost segregation study performed | $1,000,000 (20% of value) reclassified to 5- and 15-year property |
| 100% bonus depreciation applied | Full $1,000,000 deducted in year one |
| Additional year-one deduction vs. no study | $1,000,000 vs. $128,205 → $871,795 more |
| Tax savings at 37% marginal rate | Approximately $322,000 in year one |
| Long-term savings over 5 years | Approximately $500,000 |
The cost of the study? Typically $5,000 to $15,000 for a commercial property of this size — a return on investment that often exceeds 20 to 1.
Scenario 2: Residential Apartment Complex ($10 Million)
An investment firm acquires a 100-unit apartment complex for $10 million. Under the default 27.5-year schedule, annual depreciation is about $363,636. After a cost segregation study, the firm identifies 25% of the property — $2.5 million — that qualifies for shorter lives.
| What Happened | Result |
|---|---|
| $2.5M reclassified to 5- and 15-year property | Full $2,500,000 deducted in year one using bonus depreciation |
| Reduction in taxable income year one | $300,000+ more than default method |
| Cash flow improvement | More capital available for reinvestment and acquisitions |
| Study cost (estimate for this size) | $8,000–$15,000 |
A real-world example from New Jersey: a developer built an $18 million multifamily complex and missed cost segregation entirely. Years later, a cost segregation study costing $10,000 reduced the company’s tax bill by $1.7 million.
Scenario 3: Manufacturing Facility ($15 Million)
A manufacturing company purchases a $15 million facility. Because manufacturing buildings contain extensive specialized electrical systems, HVAC systems tied to production, reinforced concrete floors, and purpose-built equipment bays, cost segregation studies on industrial properties often reclassify 30% or more of the total cost.
| What Happened | Result |
|---|---|
| ~30% reclassified ($4.5M) to 5- and 15-year property | $4,500,000 deducted in year one (100% bonus) |
| Reduction in taxable income | Approximately $1.65M in federal tax savings (at 37%) |
| Without cost segregation | Annual depreciation of ~$385,000/year for 39 years |
The OBBBA also introduced a new “Qualified Production Property” (QPP) designation that provides additional bonus depreciation benefits for manufacturing cost segregation studies — though that provision has a limited window.
The Passive Activity Loss Trap: The Biggest Catch
This is the part that trips up investors the most, and it is critical to understand before ordering a study.
Under IRC § 469, the IRS classifies rental real estate as a passive activity by default. That means the accelerated depreciation losses from your cost segregation study can only offset passive income — not your W-2 wages, salary, business income, or other ordinary income. If you earn over $150,000 as a household and don’t meet specific tests, your passive losses may be entirely suspended — meaning your tax deduction is effectively $0 until you have passive income or sell the property.
The only ways to unlock these deductions against ordinary income are:
1. Real Estate Professional (REP) Status
Under IRC § 469(c)(7), if you qualify as a Real Estate Professional, your rental losses are treated as non-passive and can offset W-2 wages or business income. To qualify, you must spend more than 750 hours per year in real property trades or businesses in which you materially participate, AND that time must represent more than 50% of all your personal service hours for the year. CPAs and physicians who are high earners often pursue REP status for a spouse who manages properties full time.
2. Short-Term Rental (STR) Loophole
Short-term rentals (average guest stay of 7 days or fewer) are not classified as rental activities under the passive activity rules. If you materially participate in managing the STR — for example, by spending more than 100 hours per year on it and more than anyone else — the losses become non-passive and can offset your active income.
3. The $25,000 Offset Rule (for lower-income investors)
If you actively participate in managing your rental and your modified adjusted gross income (MAGI) is below $100,000, you can deduct up to $25,000 in passive rental losses against ordinary income. This benefit phases out completely at $150,000 MAGI.
4. Carry Forward
Even if you can’t use the losses now, they are never lost. Suspended passive losses carry forward indefinitely to offset future passive income or are released in full when the property is sold.
Who Performs a Cost Segregation Study — and Who Should You Trust?
The IRS strongly prefers the detailed engineering approach for cost segregation studies, meaning a qualified professional must physically inspect the property, review construction documents, and allocate costs using recognized methodology. The IRS Audit Techniques Guide outlines the exact requirements agents use to evaluate whether a study is valid.
The gold standard credential is the Certified Cost Segregation Professional (CCSP), granted by the American Society of Cost Segregation Professionals (ASCSP). To earn this designation, a professional must have a minimum of 7 years of direct cost segregation experience, document at least 7,000 hours of that work, submit a sample report, obtain recommendations from two certified members, and pass a comprehensive exam. Not every CPA or firm meets this standard.
Who can perform a cost segregation study:
- Certified Cost Segregation Professionals (CCSPs) — the highest credential in the field
- Engineers (civil, mechanical, electrical) with specialized tax training
- CPAs with deep real estate tax expertise and cost segregation experience
- Multidisciplinary cost segregation firms that combine all of the above
One rule of thumb: avoid DIY platforms or very low-cost providers that offer reports for a few hundred dollars through online questionnaires. Without a physical site visit, those reports are not defensible under IRS scrutiny and routinely misclassify assets — sometimes triggering the very audit you were trying to avoid.
The Step-by-Step Process of a Cost Segregation Study
Understanding the process helps you know what to expect and why each step matters for IRS compliance.
Step 1 — Initial Consultation and Feasibility Analysis
A qualified professional reviews the property type, purchase price, your tax profile, and the depreciable basis to estimate whether the study will generate enough savings to justify the cost. Most reputable firms offer a free “Estimate of Benefits” (EOB) before you commit. If the projected net benefit doesn’t exceed approximately $10,000 after the study fee, the study may not be worth it.
Step 2 — Document Collection
The team gathers purchase agreements, construction drawings, architectural plans, contractor invoices, change orders, appraisals, and prior depreciation schedules. These documents establish the property’s cost basis and are the foundation of every cost allocation decision.
Step 3 — Physical Site Visit and Inspection
A qualified engineer physically walks the property, photographs components, measures systems, and documents everything with video. This is the step that DIY providers skip — and it is exactly the first thing the IRS examines when auditing a study. The site visit is non-negotiable for a defensible report.
Step 4 — Classification and Cost Allocation
Each component identified during the site visit is assigned to the correct asset class (5-year, 7-year, 15-year, or real property) using IRS-approved methodology. Costs are allocated using current RSMeans construction cost data adjusted for local jurisdiction pricing — another area where low-cost providers frequently fall short.
Step 5 — Report Preparation
The specialist prepares a detailed report documenting the methodology, component-by-component asset classifications, cost allocations, and depreciation schedules. This report is the taxpayer’s primary defense in any IRS review. It must be comprehensive, well-organized, and signed by the preparer.
Step 6 — Integration with Tax Returns
The results are applied to your depreciation schedules, and the updated figures flow into your federal (and applicable state) tax returns. If you use a look-back study on a property you already own, the catch-up deduction is claimed through Form 3115 in the current year — no amended returns required.
The Look-Back Study: Claiming Years of Missed Deductions
One of the most underused features of cost segregation is the ability to go back in time and capture deductions you missed in prior years. If you bought a property years ago and never performed a cost segregation study, you likely left significant money on the table.
The mechanism is a look-back study filed using IRS Form 3115 (Application for Change in Accounting Method). Under Revenue Procedure 2015-13, this is an automatic consent procedure — meaning you don’t need IRS pre-approval. You simply file Form 3115 with your current tax return and take a Section 481(a) adjustment, which is a lump-sum catch-up deduction representing the difference between what you actually claimed and what you could have claimed had cost segregation been applied from the start.
The IRS allows property owners to use this look-back approach for properties placed in service up to 10 years ago. The catch-up can be substantial — sometimes hundreds of thousands of dollars deducted in a single current year. Importantly, no amended returns are required for the prior years, which simplifies the process and reduces professional fees.
One critical nuance: if you want to go back to a year when you qualified as a real estate professional, had significant passive income, or were in a higher tax bracket, you may get a better result by amending those prior returns rather than using Form 3115. A qualified tax professional should evaluate which method delivers the best outcome based on your specific situation.
Depreciation Recapture: The Tax You Pay When You Sell
This is the part of cost segregation that many investors overlook — and the consequences can be painful if you aren’t prepared.
When you sell a property for more than its depreciated value, the IRS recaptures a portion of the depreciation you previously claimed. The recapture rules differ based on which type of property was depreciated:
- Section 1250 property (structural components, real property): Recaptured at a maximum rate of 25% — already higher than the 20% capital gains rate, but still manageable.
- Section 1245 property (personal property reclassified through cost segregation — carpet, cabinets, specialty wiring): Recaptured at your ordinary income tax rate, which can be as high as 37%.
Here is why this matters. A manufacturing facility owner who reclassified $1 million into Section 1245 property and used 100% bonus depreciation saves $370,000 in year one at a 37% rate. But if the facility sells later, that same $1 million of cost segregation deductions comes back as ordinary income — creating a $370,000 tax bill on recapture. Standard depreciation would have generated only about $128,000 in deductions over five years, resulting in far less recapture.
The math still often favors cost segregation because of the time value of money — paying $370,000 in taxes ten years from now is worth far less than the $370,000 saved today. But investors must plan for this:
- A 1031 exchange defers both capital gains and recapture tax by rolling the proceeds into a like-kind property. The recapture doesn’t disappear — it transfers to the new property’s basis.
- Purchase price allocation at sale: Because cost segregation identifies the property as a basket of assets, the seller can reasonably argue that the shorter-lived personal property has little or no remaining value at the time of sale, reducing the recapture amount. Carpeting installed 10 years ago, for example, may realistically be worth $0 at sale.
- Partial asset disposition: If you replace a segregated component during your holding period — say, you replace the HVAC system — you can write off the remaining basis of the old system and depreciate the new one, rather than continuing to carry both on the books.
Pros and Cons of a Cost Segregation Study
Pros
- Dramatically increases early-year cash flow — By front-loading deductions, you free up capital that can be reinvested into improvements, new acquisitions, or debt paydown. The ROI on a well-executed study averages 10:1 to 30:1 for properties over $1 million.
- Permanently reinstated 100% bonus depreciation — Thanks to the OBBBA, every dollar reclassified into a short-lived category can be deducted immediately. For a high-bracket taxpayer, this is the most powerful single-year tax reduction tool available in real estate.
- Look-back studies recover prior missed deductions — You don’t have to have done this from day one. Investors who missed cost segregation can still recover years of deductions through a look-back study without amending returns.
- IRS-approved and legally established — This is not an aggressive tax shelter or grey-area strategy. It is specifically sanctioned by the IRS Audit Techniques Guide and supported by decades of Tax Court rulings.
- Study documentation provides long-term benefits — A quality cost segregation report enables future partial disposition write-offs, supports renovations and disposition planning, and creates a full asset register that simplifies future tax work.
Cons
- Passive loss rules can eliminate near-term benefit — If you are a W-2 earner with income above $150,000 and you don’t qualify as a Real Estate Professional or use the STR loophole, the depreciation losses from cost segregation cannot offset your ordinary income. The losses carry forward — but the immediate benefit disappears.
- Depreciation recapture on sale can be costly — Section 1245 recapture at ordinary income rates (up to 37%) can create a significant tax bill when you sell. Investors who plan to sell quickly should carefully model the recapture before proceeding.
- Study cost is not trivial for smaller properties — A residential study runs $1,200–$5,000 and a commercial study runs $5,000–$15,000 or more. For properties below $500,000, the math may not support the cost — especially if passive loss rules apply.
- State conformity varies — Many states, including California and New York, do not conform to federal bonus depreciation rules, meaning your state tax savings may be lower than your federal savings — or zero. Always analyze both federal and state impacts together.
- DIY and low-quality studies create audit exposure — A study that doesn’t meet IRS standards can trigger an audit, result in penalties, and reverse the deductions entirely. The AmeriSouth case is a reminder that poorly documented studies fail when challenged.
Do’s and Don’ts
Do’s
- Do verify passive loss eligibility before ordering a study — Understand whether you qualify as a REP, have passive income to absorb losses, or can use the STR loophole. This single factor determines whether you get an immediate benefit or a deferred one.
- Do use a CCSP-credentialed professional — The CCSP designation from the ASCSP signals that the professional meets the IRS’s preferred engineering-based methodology, has documented audit support capabilities, and follows established standards.
- Do request an Estimate of Benefits before committing — Reputable cost segregation firms offer a free EOB that projects your expected savings. If the net benefit after study fees doesn’t justify the cost, don’t proceed.
- Do consider a look-back study if you already own the property — File Form 3115 with your current return to capture the Section 481(a) catch-up adjustment for all missed depreciation in one lump sum.
- Do plan for recapture before you sell — Model the recapture tax using your cost seg asset register well before the sale. Explore a 1031 exchange, purchase price allocation, or installment sale to manage the recapture obligation.
Don’ts
- Don’t use a DIY platform or rule-of-thumb study — Without a physical site visit and current RSMeans cost data, the study will not survive an IRS audit. Eighty percent of improperly prepared studies contain fatal flaws.
- Don’t apply cost segregation to property you plan to sell within 1–2 years — The recapture tax on quickly sold property reduces or eliminates the benefit. The strategy works best for properties held 5 years or more.
- Don’t assume your state follows federal bonus depreciation rules — State conformity varies widely. California, for example, has historically decoupled from federal bonus depreciation, meaning you may owe state taxes even when your federal tax drops to zero.
- Don’t forget to document land value allocation properly — The IRS examines land value allocation first in any cost segregation audit. Land must be allocated using county assessor values at the time of purchase — not a rule-of-thumb percentage.
- Don’t wait too long on existing properties — The 10-year look-back window means older properties may be eligible, but assets beyond 10 years cannot be recaptured through the Form 3115 process. The longer you wait, the more deductions expire.
Mistakes to Avoid
Mistake #1: Ordering a study without understanding PAL rules
Consequence: You pay $8,000–$15,000 for a study that generates $300,000 in depreciation losses — but because your rental is passive and you earn $180,000 from your job, every dollar of those losses is suspended. You get zero current-year benefit. Always confirm eligibility before spending money on a study.
Mistake #2: Using a DIY or undercredentialed provider
Consequence: The study misclassifies assets, lacks a site visit, and uses outdated cost data. When the IRS audits — which it does on large, unusual deductions — the report fails, the deductions are disallowed, and penalties and interest accrue on top. The $500 you saved on the study costs you $100,000 in reversed deductions.
Mistake #3: Ignoring recapture when modeling the deal
Consequence: An investor takes $800,000 in Section 1245 depreciation through cost segregation, then sells the property two years later in a hot market. The entire $800,000 triggers recapture at ordinary income rates — creating a $296,000 tax bill the investor didn’t plan for. Always model the exit before you enter.
Mistake #4: Assuming 100% bonus depreciation applies to all your property
Consequence: An investor buys a property under a binding contract signed before January 20, 2025, places it in service in mid-2025, and assumes full bonus depreciation applies. In reality, the transition rules under OBBBA limit the bonus to 40% because the contract predates the OBBBA cutoff. The expected $600,000 deduction turns into $240,000.
Mistake #5: Skipping state-level analysis
Consequence: A California investor takes $500,000 in federal bonus depreciation, reduces federal taxable income by $500,000, and is thrilled — until their CPA points out that California does not conform to federal bonus depreciation. They owe California income tax as if the bonus depreciation never happened, erasing a significant portion of the anticipated savings.
Key Entities in the Cost Segregation World
Understanding the key players helps you navigate this space with confidence.
- The IRS publishes the Cost Segregation Audit Techniques Guide, which defines what a valid study must include. When the IRS audits a study, agents use this guide as their primary evaluation tool.
- The American Society of Cost Segregation Professionals (ASCSP) is the primary professional organization that sets technical standards and issues the CCSP credential. It maintains an open dialogue with the IRS and has provided formal feedback on the Audit Techniques Guide revisions.
- Certified Cost Segregation Professionals (CCSPs) are the most qualified practitioners. To earn the designation, a professional must complete at least 7,000 hours of direct cost segregation experience over a minimum of 7 years, pass a comprehensive exam, and obtain recommendations from established CCSPs.
- Your CPA or tax attorney coordinates the study results with your broader tax strategy — including passive activity planning, REP qualification, state tax analysis, and recapture modeling. A cost segregation study in isolation is just data; integrated tax planning is where the strategy comes to life.
- Form 3115 (Application for Change in Accounting Method) is the IRS form used to file a look-back cost segregation study without amending prior returns. It triggers the Section 481(a) adjustment that captures all missed depreciation in the current tax year.
FAQs
Does a cost segregation study work for residential rental properties?
Yes. Residential rentals default to a 27.5-year schedule. Cost segregation can identify 20–30% of the basis for 5- or 15-year treatment, and 100% bonus depreciation applies to qualifying assets after January 19, 2025.
Does my property need to be worth a minimum amount before a study makes sense?
Yes. The conventional minimum is around $500,000 in depreciable value. Below that threshold, the study cost often exceeds the net tax savings. Always request a free Estimate of Benefits first.
Can I do a cost segregation study on a property I bought several years ago?
Yes. You can file a look-back study using Form 3115 to capture missed deductions for properties placed in service up to 10 years ago, all in the current tax year, without amending prior returns.
Will a cost segregation study trigger an IRS audit?
No, not on its own — but a poorly done study creates significant audit risk. Studies that skip site visits, use rule-of-thumb methods, or overreach on classifications draw IRS scrutiny. A properly documented, engineer-led study is specifically sanctioned by the IRS.
Does 100% bonus depreciation still apply in 2026?
Yes. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This applies to 5-, 7-, and 15-year property identified in cost segregation studies.
Can I use cost segregation losses to offset my W-2 income?
No, unless you qualify as a Real Estate Professional under IRC § 469(c)(7) or use the short-term rental loophole. Without one of those statuses, rental losses are passive and can only offset passive income — not W-2 wages.
What happens to suspended passive losses when I sell the property?
Yes, they are released. When you sell a property, all previously suspended passive losses from that activity are released in full and can offset any type of income in the year of sale.
Does cost segregation apply to commercial leasehold improvements (tenant build-outs)?
Yes. Tenants who pay for leasehold improvements can perform a cost segregation study on those improvements and accelerate depreciation on the qualifying components, subject to the same 5-, 7-, and 15-year rules.
Will state taxes eliminate the benefit of a cost segregation study?
Not entirely, but they can reduce it. States like California and New York do not conform to federal bonus depreciation, which means you will owe state taxes even when federal liability drops. Always analyze the combined federal and state impact.
Do I need to hire a separate engineer, or does one firm handle everything?
No separate hire is needed. Most multidisciplinary cost segregation firms employ both engineers and tax professionals under one roof, handling the site visit, classification, report, and audit support in a single engagement.