To estimate cost segregation savings, subtract land from your purchase price, multiply the building value by a reclassification percentage (often 20% to 30%), and multiply that amount by your tax rate. With 100% bonus depreciation, the result is a rough estimate of first-year tax savings. A professional study will give you the real number.
This content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.
The 4-step calculation
Step 1: Find your building value. Purchase price minus land value. Example: $800,000 minus $160,000 of land = $640,000.
Step 2: Estimate the short-life share. Multiply the building value by a reasonable reclassification percentage. Example: $640,000 × 25% = $160,000.
Step 3: Apply bonus depreciation. If you acquired the property after January 19, 2025, the bonus rate is 100%. Example: $160,000 × 100% = $160,000 of first-year deduction from the short-life parts.
Step 4: Multiply by your tax rate. Use your combined federal and state marginal rate. Example: $160,000 × 35% = about $56,000 in first-year tax savings.
This simple method slightly overstates the benefit, because the reclassified amount no longer gets regular 27.5- or 39-year depreciation. The difference is small in year one.
Picking a reclassification percentage
| Property type | Starting assumption |
|---|---|
| Furnished short-term rental | 25%–35% |
| Multifamily apartments | 20%–30% |
| Single-family long-term rental | 15%–25% |
| Restaurant, hotel, medical | 25%–40% |
| Office or retail | 15%–25% |
| Warehouse | 5%–15% |
Quick-reference savings table
Assumptions: residential rental, land is 20% of price, 25% reclassified, 100% bonus depreciation, 35% tax rate, placed in service in January.
| Purchase price | Building value | Short-life amount | Extra year-1 deduction (approx.) | Year-1 tax savings (approx.) |
|---|---|---|---|---|
| $500,000 | $400,000 | $100,000 | $96,500 | $33,800 |
| $1,000,000 | $800,000 | $200,000 | $193,000 | $67,600 |
| $2,000,000 | $1,600,000 | $400,000 | $386,100 | $135,100 |
| $5,000,000 | $4,000,000 | $1,000,000 | $965,200 | $337,800 |
Three things the calculator can't tell you
- Whether you can use the loss. Passive loss rules may delay the benefit unless you have passive income, qualify as a real estate professional, or materially participate in a short-term rental.
- Your state result. Many states don't follow federal bonus depreciation.
- The cost on sale. Depreciation recapture can tax back part of the benefit when you sell.
When the estimate is worth acting on
A common rule of thumb: if your estimated first-year tax savings are at least 5 to 10 times the study fee, it's worth getting a professional feasibility analysis.
Frequently asked questions
How accurate is a cost segregation calculator?
What if I bought before January 20, 2025?
Should I use my federal rate only?
See what your property may qualify for
Run our 2-minute STR Qualification Quiz or model your Low / Mid / High cost segregation range.
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Read guideThis content is not tax or financial advice for you. Please talk with a CPA to find what's right for your situation.