CalculateRealEstateROI

Tax

Cost Segregation Strategy

Engineering studies reclassifying 20–35% of property basis to short-life depreciation, generating large year-1 deductions.

Reviewed by Keiron Brown, Founder & Editor, CalculateRealEstateROI · Educational estimates only — not investment, financial, tax, or legal advice

Core concepts

Asset reclassification

5/7/15-year components vs 27.5-year building.

Bonus depreciation stacking

60% bonus (2024) on short-life components delivers majority of benefit upfront.

Monetization required

REPS, STR loophole, or material passive income required to use losses.

Examples

  • $700k property: $200k accelerated → $120k year-1 deduction at 60% bonus.

Practical applications

  • High-income investors with REPS or STR.
  • $400k+ basis properties.

Common mistakes

  • Doing cost seg without using losses.
  • Skipping recapture planning at sale.