Cost Segregation Study
Update As of 07/04/2025 About the 100% Bonus Depreciation
The House passed the Senate’s version of the “One Big Beautiful Bill Act” (OBBBA), subsequently President signed the Act, marking a significant overhaul to federal tax policy. The signing reflects a major pivot in legislative priorities toward domestic production and pro-business tax policy. The new law restores 100% bonus depreciation.
100% Bonus Depreciation Restored
Businesses can immediately expense qualifying assets placed in service after January 19, 2025, eliminating the previously scheduled phase-down. This change is expected to drive accelerated capital investment across industries. The Act makes 100% bonus depreciation permanent for eligible property placed in service. This change means taxpayers may immediately deduct the cost of qualifying property placed in service on or after January 20, 2025.
For taxable year 2026, taxpayers can elect out of bonus depreciation and elect into a 40% bonus (or 60% for property with a longer production period) or otherwise use the applicable MACRS or straight-line depreciation methods.
New Bonus Depreciation for Manufacturing QPP (Section 168(n))
Qualified production property enjoys 100% bonus depreciation until 2029, a significant benefit for domestic manufacturers and supply-chain operators.
Prior Law (TCJA of 2017)
Under pre-Act law, eligible equipment and property, including renewable energy property, were eligible for bonus depreciation permitted by the Tax Cuts and Jobs Act. The prior 100% bonus depreciation was subject to a phaseout schedule providing that a 40% bonus depreciation was allowed for qualified property placed in service in 2025, 20% in 2026, and 0% in 2027 and thereafter.
Example - Actual Case I Performed Applying the 100% bonus depreciation
14-Story Office Building
Purchase Price - $37,170,000
Improvements Basis (for Cost Segregation) except Land - $30,985,316
After Cost Segregation
5-year life class - $5,888,901
(19.01% of the improvements basis)
7-year life class - $154,563 (0.50%)
15-year life class - $324,665 (1.05%)
Total eligible for 100% Bonus Depreciation at the first year (5, 7, 15 years class combined) under the new tax law:
$6,368,129
If under the old tax law prior to 09/27/2017, apply the double-declining balance method, the first year (5, 7, 15 years class combined), the depreciation will be:
$2,432,923
That is the increase of depreciation benefit of $3,935,206 at the first year.
Assuming a tax bracket of 37% for married filing jointly over $600,000, additional tax savings will be $1,456,026 depending on the individual or entity's tax situation.
Cost Segregation Study Benefits
Take a huge tax deduction by doing the Cost Segregation. Under the alternative depreciation system, as modified by the Act, the recovery periods for nonresidential depreciable real property, residential depreciable real property and qualified improvements are 40 years, 30 years and 20 years, respectively.
The Act extends and modifies the additional first-year depreciation deduction for qualified depreciable personal property by increasing the 50% allowance to 100% for property placed in service after September 27, 2017, and before 2023. After 2022, the bonus depreciation percentage is phased-down to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, and 20% for property placed in service in 2026. The bill removes the requirement in current law that the original use of qualified property must commence with the taxpayer. Thus, immediate expensing applies to purchases of used as well as new items.
What is Cost Segregation?
Something called cost segregation may help owners of commercial real estate save significantly on their federal income taxes. The primary goal of a cost segregation study is to identify all construction-related costs that qualify for accelerated income tax depreciation. Small or large, your business can save money with a cost segregation study, typically many times the amount you invest. The Benefits of Cost Segregation We perform a detailed analysis of your commercial property for the purpose of identifying all of the construction related expenses that can be depreciated over 5, 7 and 15 years. The result of our study is the accelerated depreciation of these deductions, reducing your tax liability and increasing your cash flow.
Under Old Tax Law
The Benefits of Cost Segregation (applicable to prior to 09/27/2017)
Cost Segregation is a tax planning tool that determines how quickly an owner should be depreciating the property on his income taxes — five years, seven years, 15 years, 27.5 years or 39 years. The Internal Revenue Service allows owners of commercial properties to accelerate depreciation on their real estate, which will result in reducing the property owner’s taxable income levels. A cost segregation study is an in-depth analysis of the costs incurred to build, acquire or renovate a real estate holding.
Qualifying Properties:
Hotel/Motel, Gas Station/ Car Wash, Industrial/ Warehouse Building, Apartment, Office Building, Grocery Store, Restaurant, Retail, Nursing Homes, Golf Course, Auto Related, Leased Tenant Improvements.
Any commercial/investment real property placed into service since January 1st, 1987 may benefit from a Cost Segregation Study (CSS):
Critical timing is when the property was placed into service by the current owner / taxpayer, not when the building was originally constructed.
•New construction, including renovation, remodeling, restoration, or expansion to an existing building