A cost segregation analysis, often called a feasibility analysis, estimates how much of your building can be reclassified and what that's worth in tax savings before you pay for a full study. It's usually worth moving forward when the building value is $300,000 or more, you'll hold the property several years, and you can actually use the deductions.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
Analysis vs. study: what's the difference?
- A cost segregation analysis is a quick estimate. It uses your purchase price, property type, and tax situation to predict savings. Many providers do it for free.
- A cost segregation study is the full, detailed engineering report your CPA uses on your tax return.
Think of the analysis as the "should I?" step and the study as the "let's do it" step.
The 6 factors that decide whether it's worth it
| Factor | Favors a study | Weakens the case |
|---|---|---|
| Building value (excluding land) | $300,000+ | Under $200,000 |
| Property type | STRs, apartments, restaurants, medical, retail | Plain warehouse or shell |
| Hold period | 5+ years | Selling within 1–2 years |
| Ability to use losses | Passive income, REPS, or STR material participation | All losses would be suspended for years |
| Tax bracket | 32% or higher | 12% or lower |
| Acquisition date | After Jan 19, 2025 (100% bonus) | Older property at reduced bonus rates (still often worth it) |
If most of your answers fall in the left column, a study is likely worth a closer look.
A simple worked analysis
Let's run the numbers on a duplex bought in March 2025.
- Purchase price: $850,000
- Land value: $170,000
- Building value: $680,000
- Estimated reclassification: 22% = about $150,000
- Bonus depreciation: 100% (acquired after January 19, 2025)
- Owner's marginal tax rate: 35%
- Study fee: $5,500
Estimated first-year tax deferral: about $150,000 × 35% = $52,500
Return on fee: about 9.5 to 1
Now change one thing: the owner has W-2 income, no passive income, and doesn't qualify for REPS. The $150,000 loss gets suspended. The study still has value later, but the immediate payoff disappears. That's why the tax situation matters as much as the property.
Don't forget the long-term picture
A good analysis also looks at:
- Depreciation recapture when you sell. Short-life assets can be taxed at ordinary rates.
- Time value of money. A dollar saved today is worth more than a dollar paid back in 10 years.
- State taxes. Some states don't allow bonus depreciation.
- Future plans. A 1031 exchange, refinance, or holding until death changes the math.
Questions to ask a provider during the analysis
- What reclassification percentage do you expect, and why?
- Is this estimate based on similar properties you've studied?
- What's the flat fee, and what does it include?
- Will you do a site visit?
- Do you include Form 3115 support and audit defense?
Frequently asked questions
Is a free cost segregation analysis accurate?
Can I run my own analysis?
What if the analysis says it's not worth it?
See what your property may qualify for
Run our 2-minute STR Qualification Quiz or model your Low / Mid / High cost segregation range.
Related guides
Cost Segregation Calculator: Estimate Your Savings in 4 Steps
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Read guideHow Much Does a Cost Segregation Study Cost? 2026 Price Guide
What does a cost segregation study cost? See typical 2026 price ranges by property type, what drives the fee, and how to tell if it pays off.
Read guideCost Segregation for Real Estate Investors: Timing, Losses, and Strategy
Cost segregation only pays if you can use the deductions. Learn how passive loss rules, real estate professional status, and timing shape your strategy.
Read guideDepreciation Recapture: What It Is and How to Plan for It
Depreciation recapture taxes back some depreciation when you sell. Learn the 25% and ordinary rates, see an example, and explore ways to reduce or defer it.
Read guideThis content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.