Cost segregation studies
Cost segregation for residential rental property.
A cost segregation study separates a building's cost into components with shorter tax lives. Instead of depreciating everything over 27.5 years (residential) or 39 years (nonresidential), items like appliances, carpets, and furniture in a rental become 5-year property and site work like sidewalks and landscaping becomes 15-year property, moving deductions earlier.
We model whether it's worth it, prepare the study in-house for smaller rentals or coordinate an engineer-led study for larger ones, and report it correctly on your return.
- Residential rental buildings: 27.5 years. Nonresidential: 39 years.
- Appliances, carpets, and furniture in a residential rental: 5-year property.
- Land improvements like sidewalks, fences, and landscaping: 15-year property.
- Property acquired after January 19, 2025: qualifying parts can take 100% bonus depreciation.
- Passive loss limits and depreciation recapture at sale still apply.
The short version
What a cost segregation study does.
When you buy a rental, the IRS default is slow: residential property depreciates over 27.5 years, commercial over 39. But a building isn't one asset. It's hundreds of components. The parking lot, the landscaping, the cabinetry, the decorative lighting: each has its own depreciation life. A study identifies the components that qualify for 5-, 7-, or 15-year treatment and reclassifies them. The result is larger deductions in the early years of ownership instead of the same total spread over decades. Paired with bonus depreciation, much of that can land in year one.
Who it's for
Model it before you buy it.
How much gets reclassified depends on the property. Furniture and appliances in a furnished short-term rental are 5-year property a study can separate out. If you bought a furnished rental without one, check whether everything was put on the right schedule. If you bought, built, or substantially renovated in the last few years and plan to hold, it's worth modeling. If you're selling soon, recapture can take back much of the benefit.
A two-minute check
Is a study worth modeling?
- You bought, built, or substantially renovated a rental in the last few years.
- You plan to hold it for several more years.
- The building, not counting land, cost a meaningful amount, or it is furnished.
- You can use the losses: you qualify for REPS, the property is a short-term rental you materially participate in, or you have other passive income.
- Nobody has already broken out the furniture, appliances, and site work on your depreciation schedule.
Mostly yes? It is worth modeling, and the intro call is where that starts. Selling soon or no way to use the losses? A study can wait.
How it works
Three steps. You do none of the technical work.
- 1. We model the benefit first.Before you spend a dollar on a study, we estimate the reclassification and the tax savings for your property and your tax situation. If the numbers don't clear the cost, we tell you, and you spend nothing.
- 2. We prepare or coordinate the study.For smaller rentals, our team prepares the study in-house with professional cost segregation software. Instead of a site visit, you complete a 15 to 20 minute property survey, and we check it against your closing statement, improvement costs, and land value. Larger or more complex properties get an engineer-led study that we coordinate. Either way, the study is documented and kept in your file.
- 3. We file it right.Change in accounting method (Form 3115) where needed, bonus depreciation applied at whatever rate current law allows for your placed-in-service date, and audit-ready documentation kept in your file.
What gets reclassified
The parts of a rental that depreciate faster.
IRS rules put a residential rental building on a 27.5-year schedule and a nonresidential building on 39 years. Inside that cost sit assets with much shorter lives:
- 5-year property: appliances, carpets, furniture, and similar items used in a residential rental.
- 15-year land improvements: sidewalks, roads, fences, landscaping, and drainage.
- Other personal property: some components inside the building qualify for 5- or 7-year treatment.
Whether a component qualifies is a fact-heavy call with no bright-line test, which is why the study has to be documented. Land itself is never depreciated.
Bonus depreciation
100% in year one for property acquired after January 19, 2025.
The One Big Beautiful Bill Act made a 100% special depreciation allowance permanent for qualified property acquired and placed in service after January 19, 2025. Qualified property includes tangible property with a recovery period of 20 years or less, which is what a study separates out of the building.
The 27.5- or 39-year building itself does not qualify. Property acquired before January 20, 2025 and placed in service in 2025 is limited to 40%. You can also elect a lower rate or elect out, so we model whether taking it all now actually helps you.
Two catches
Read this before you buy a study.
Passive loss limits still apply. Unless you qualify as a real estate professional, the extra depreciation on a long-term rental generally creates a passive loss. It can only offset passive income unless you qualify as a real estate professional or the $25,000 allowance applies. Short-term rentals with an average stay of 7 days or less follow different rules. Our guides to real estate professional status and short-term rental rules explain both.
Depreciation comes back when you sell. Gain on the 5- and 7-year items is generally taxed as ordinary income up to the depreciation you took. The part of the building's gain that comes from depreciation, called unrecaptured section 1250 gain, has its own capital gains rate. That is why a study fits best when you plan to hold.
How studies are done
How a study is done, and what the IRS checks.
The IRS hasn't set one required method. Its Cost Segregation Audit Techniques Guide (Publication 5653) lists six approaches examiners see:
- Detailed engineering from actual cost records. Built from real construction invoices, so it's generally only possible for new construction.
- Detailed engineering cost estimate. Fits a rental you bought. Costs are estimated from documents and published cost data, and they should add up to roughly the purchase price minus the land.
- Survey or letter. The contractors on a new build report what specific items cost.
- Residual estimation. Only the short-lived items get priced and the rest goes to the building. Simpler, but it can be less accurate.
- Sampling or modeling. One model applied across many nearly identical buildings, like a fast food chain.
- Rule of thumb. A fixed percentage with little or no documentation. The guide tells examiners to view it with caution.
Actual costs beat estimates. When a study estimates, the method and the cost sources should be written down.
What that means for you: the study type should match the property, and the documentation is what holds up in a review. We tell you which one your property needs when we model the benefit.
An example
What the first year can look like.
Say you buy a short-term rental for $600,000 after January 19, 2025, with $120,000 allocated to land. Without a study, the $480,000 building depreciates over 27.5 years, roughly $17,500 in a full year.
If a study finds $120,000 of 5-, 7-, and 15-year property, 100% bonus depreciation lets you deduct that $120,000 in year one, plus regular depreciation on the remaining $360,000 of building. Whether that deduction lowers your tax this year depends on the passive rules above. The figures are illustrative; every study comes out differently.
Cost
What a study costs.
In-house studies are a flat fee by building basis (not counting land): $1,500 up to $500,000, $1,950 up to $1 million, and $2,900 up to $1.5 million. Each additional building is its own study at the same fee. That covers reviewing your closing statement, improvements, and land value, the property survey, the study itself, checking the software's depreciation settings, and applying the results when we prepare your return.
A look-back study on a rental you've owned for years adds a Form 3115, $500 each, billed with your return. The return itself is priced separately. Larger or more complex properties get an engineer-led study, and the engineering firm quotes it before you commit.
For comparison, published prices run from about $495 for software you fill out yourself to $2,300 to $3,000 and up for engineered studies. Many study providers hand you the report and leave the return to your preparer.
The first steps cost nothing: a free 15-minute intro call, then we model the benefit for your property before you pay for a study.
FAQ
Cost segregation questions.
Do I need a cost segregation study?
Not everyone. It depends on the property, how long you plan to hold, and whether you can use the losses this year. We model the benefit for your specific property before you spend anything on a study.
Can I do my own cost segregation study?
Nothing stops you from allocating costs yourself, but the IRS reviews studies against its Cost Segregation Audit Techniques Guide. The guide lists 13 elements of a quality study, starting with preparation by someone with expertise and experience, and it tells examiners to view a “rule of thumb” study, one built on little or no documentation, with caution. A thin do-it-yourself allocation is likely to draw that kind of closer look.
Is the intro call free?
Yes. The 15-minute intro with Corben is free, and it comes before any benefit model or study.
How much does a cost segregation study cost?
In-house studies are priced per building by basis: $1,500 up to $500,000, $1,950 up to $1 million, and $2,900 up to $1.5 million. That includes the basis review, the property survey, and applying the study when we prepare your return; the return itself is priced separately. A look-back adds a $500 Form 3115, billed with the return. Larger properties get an engineer-led study, quoted before you commit.
Can I do a cost segregation study on a property I already own?
Yes. A lookback study lets you catch up missed depreciation in the current year through a change in accounting method (Form 3115). No amended returns needed.
What about bonus depreciation?
Bonus depreciation rules have changed several times in recent years. We'll apply whatever rate current law allows for your property's placed-in-service date and make sure it's claimed correctly.
Who should perform the study?
It depends on the property. For smaller rentals, our team prepares the study in-house with professional cost segregation software. For larger or more complex properties, we coordinate an engineer-led study. Ask any firm how its study is built and documented, and expect a straight answer.
Next step
Talk through your property.
Fifteen minutes with Corben: what you bought, what it might be worth in accelerated depreciation, and whether a study pencils out. No pitch for the study itself. If the math doesn't work, you'll hear that first.