The basics
What is a cost segregation study?
An analysis that splits the cost of a building into the components the tax law depreciates over different periods: 5- and 7-year personal property, 15-year land improvements, the 27.5- or 39-year building, and non-depreciable land. Each component gets a cost from your records and a documented reason for its class.
What property qualifies?
Buildings you own and use in a business or hold for rent: offices, retail, industrial, medical, hotels, multifamily and single-family rentals, short-term rentals. New construction, acquisitions and renovations all qualify. Land and your personal residence do not.
Is there a minimum property value?
No legal minimum. Providers commonly cite roughly $500,000 to $1 million of depreciable basis as the point where a study tends to justify its fee, and lower amounts for renovations. That is a rule of thumb; the calculator gives a better first read.
Does cost segregation create new deductions?
No. It changes when you deduct the same basis. More depreciation comes early and less later, which is valuable because money now is worth more than money later, and because bonus depreciation lets the short-life components be deducted at once.
Timing, bonus depreciation and look-back studies
What bonus depreciation rate applies in 2026?
100% for property acquired under a written binding contract after January 19, 2025. For property acquired under an earlier contract, the TCJA phase-down applies by year placed in service: 40% in 2025, 20% in 2026, 0% after 2026. See bonus depreciation in 2026.
When is the best time to do a study?
In the year the building is placed in service, before the return is filed, so the first return already uses the right classes. A later study still works through a look-back.
Can I do a study on a building I have owned for years?
Usually. A look-back study is an automatic change in accounting method filed on Form 3115 under Rev. Proc. 2025-23 §6.01 (designated change number 7). The missed depreciation is a §481(a) adjustment taken entirely in the year of change when it is in your favor, with no amended returns. You generally need to have used the old method for two or more years. See Form 3115 look-back studies.
How long does a study take?
It depends mostly on the property and how quickly the documents arrive. We give you an expected delivery date once we have seen the file.
Audit risk and quality
Does a cost segregation study increase audit risk?
The study is not a red flag in itself; the IRS publishes an Audit Techniques Guide for examining them. What draws scrutiny is quality: no land allocation, structural items called equipment, standard percentages, contingent fees, or totals that do not reconcile to cost. Our studies are built to the guide’s quality elements and approved by a CPA.
What does the IRS consider a quality study?
Pub 5653 lists 13 principal elements, including preparation by someone with the right expertise, a described methodology, appropriate documentation, legal analysis, reconciliation of allocated to actual cost, and treatment of indirect costs. Read what the ATG expects.
Is a Ricerca study engineered?
Our studies are engineering-informed: components are classified from your cost records and drawings with the authority for each, reviewed by an independent CPA Agent and approved by a CPA. We do not describe them as engineer-certified, and when a property needs an appraiser or an engineer’s takeoff we tell you in the assessment.
What happens if the study is examined?
The workpaper binder is organized around the information requests an examiner issues. The scope of our support is set in your engagement letter; formal representation before the IRS, where required, is performed by a federally authorized practitioner.
Selling, recapture and other limits
What is depreciation recapture?
When you sell at a gain, depreciation taken on 5-, 7- and 15-year property is generally taxed as ordinary income (§1245). Straight-line depreciation on the building is taxed at up to 25% as unrecaptured §1250 gain. A study shifts more depreciation into the first category, so the hold period matters.
Can I use the deduction against my other income?
Only if the passive activity rules of §469 allow it. Rental losses are usually passive and offset only passive income. Two exceptions matter most. A short-term rental whose average guest stay is 7 days or less is not a rental activity (Temp. Reg. §1.469-1T(e)(3)(ii)(A)), so its loss is non-passive if you materially participate. A real estate professional, someone who spends more than 750 hours and more than half of their working time in real property trades or businesses in which they materially participate, can treat a rental loss as non-passive if they also materially participate in the rental (§469(c)(7)). Losses you cannot use now carry forward. Your CPA applies these tests; Ricerca does not decide them.
Does my state follow federal bonus depreciation?
Many states do not. Pennsylvania decouples: for the corporate net income tax the federal bonus is added back and the property is depreciated without it, and the personal income tax follows its own rules. California never adopted bonus depreciation, and New York, New Jersey and Massachusetts decouple in whole or part. Those states depreciate the same components on their own schedules, so the state deduction in the first year can be much smaller than the federal one and you keep a separate state basis. State rules change; confirm the current year with your CPA.
How much does a study cost?
Ricerca quotes a fixed fee per study after the free assessment, set by the property and the records available, never a percentage of the deduction. For how fees vary across the market, read how much a study costs.
Primary sources
What this page relies on, as reviewed October 2, 2026.
- IRS Pub 5653, Cost Segregation Audit Techniques Guide (rev. 2-2025)
- IRS Notice 2026-11, additional first-year depreciation after P.L. 119-21
- Rev. Proc. 2025-23, List of Automatic Changes (DCN 7, §6.01)
- IRS Instructions for Form 3115
- 26 U.S.C. §1245, gain from dispositions of depreciable property (Cornell LII)
- 26 U.S.C. §469, passive activity losses (Cornell LII)
- Treas. Reg. §1.469-1T(e)(3), definition of rental activity (Cornell LII)
- Bloomberg Tax, state conformity to federal bonus depreciation (secondary)
- Pennsylvania Department of Revenue, Corporate Net Income Tax audit manual (bonus depreciation add-back)
Tax law, IRS guidance and state conformity change. Confirm the current rules and how they apply to your property with a qualified professional before acting.