Cost segregation in 2026: when the numbers actually work
The OBBB Act (July 2025) restored 100% bonus depreciation permanently for property acquired after January 19, 2025 — cost-seg math is back to its strongest form. The acquisition date, not just the year, decides which regime applies.
A cost segregation study reclassifies parts of a building (carpet, fixtures, parking lots, landscaping) into 5-, 7-, or 15-year depreciation buckets instead of the default 27.5 or 39 years. Combined with bonus depreciation, this front-loads deductions to year 1 — the biggest single tax move available to most rental property investors.
The restored math: TCJA bonus depreciation was 100% through 2022, then phased down (60% in 2024, 40% in 2025). The OBBB Act of July 2025 restored it to 100% permanently — for qualified property ACQUIRED after January 19, 2025. On a $500K building with 25% reclassification ($125K), 100% bonus gives you roughly $120K of year-1 deduction beyond straight-line. At a 35% combined marginal rate, that's ~$42K of year-1 tax savings. Property acquired on or before January 19, 2025 stays on the old phase-down even if placed in service later — the acquisition date, not the calendar year, decides.
The breakeven: the study itself runs $3K–$10K traditional or $1K–$2K for DIY software. At 35% marginal rate, the study pays for itself in year 1 if reclassification produces ≥$10K of accelerated deduction — which is the case for almost any property over $400K basis.
Where it really matters: the STR loophole. If you operate a short-term rental (average stay ≤7 days) AND materially participate, the losses become non-passive and can offset W-2 income. Cost segregation in year 1 of an STR purchase, at a 37% marginal rate, can produce $30K–$60K of tax savings on a single $700K acquisition. This is the highest-leverage tax move available to high-W-2 households entering real estate.
What to watch: recapture. Accelerated depreciation is a timing play — the deductions you pull forward come back as recapture income when you sell, unless you exit via 1031 or hold to a stepped-up basis. Under permanent 100% bonus, the binding constraints are now your passive-activity position (REPS or the STR route) and the acquisition-date boundary — both worth a CPA conversation before commissioning the study.