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Office Address

16220 N. Scottsdale Rd. Suite 300
Scottsdale, AZ 85254

Company Email

team@depreciation.com

Phone

1-800-DEPRECIATION (337-7324)

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FAQ’s

Frequently Asked Questions

What is bonus depreciation and why is it such a great tax strategy?

Bonus depreciation is a powerful tax incentive that allows real estate investors to deduct a large portion—or in some cases the entire cost—of certain property components in the same year they’re placed in service, rather than spreading those deductions over decades. Under current law, bonus depreciation generally applies to qualified property with a tax recovery period of 20 years or less. Normally, real estate (absent a cost segregation study) is depreciated over 27.5 years (residential) or 39 years (nonresidential). But many parts of a property that generally get grouped in with the real estate, such as flooring, cabinets, decorative lighting, specialty electrical systems, and site improvements, are eligible for shorter recovery periods and can claim bonus depreciation. Through a cost segregation study, these components are identified and reclassified into 5, 7, or 15‑year asset categories with eligibility for bonus depreciation.

This is a great strategy because it:

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Generates massive first‑year deductions that can eliminate much of your taxable income.
Improves cash flow by reducing your immediate tax bill.
Allows you to offset passive income from other real estate holdings (and in certain cases, even non‑real‑estate income — see the third FAQ for more detail)
Frees up capital to reinvest in more properties or pay down debt faster.

Do I need a cost segregation study to claim bonus depreciation?

Yes — in most cases. Bonus depreciation allows you to deduct a large portion (sometimes 100%) of the cost of certain assets in the year they’re placed in service. However, to take full advantage, you first need to identify which parts of your building qualify as “shorter-life property” (generally assets with a tax life of 20 years or less).

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That’s where cost segregation comes in. A cost segregation study is an IRS-recognized, engineering-based analysis that reclassifies building components into the correct tax lives. Without this study, most property simply defaults to 27.5- or 39-year depreciation, meaning you’d miss out on significant upfront deductions.

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The IRS specifically references cost segregation studies as the preferred method for substantiating bonus depreciation (see IRS Audit Techniques Guide: Cost Segregation Examination).

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How it works:

Data Gathering: Review of construction documents, blueprints, invoices, and tax records.
Property Review: Verification of building materials, finishes, and site improvements.
Engineering Analysis: Detailed breakdown of assets and assignment to correct tax categories.
Tax Report: Delivery of an IRS-compliant report to support your deductions in case of audit.

Can bonus depreciation offset non‑real‑estate income?

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Yes — in some cases. Normally, deductions from rental properties can only offset passive income (like other rental income). But there are two main exceptions:

Short-term rentals (STRs): If you meet the IRS’s material participation tests, STR income is considered non-passive. Bonus depreciation from those properties can offset W-2 wages, business income, or other non-passive income.
Real Estate Professional Status (REPS): If you qualify, rental income can also be treated as non-passive. However, the REPS rules are more complex and burdensome to meet, and require significant time and activity thresholds.

Important: These benefits are not automatic. They depend on your level of involvement and satisfying strict IRS rules. Always confirm your eligibility with a qualified tax advisor.

How long does the process take?

Our team can complete most cost segregation studies in 1–4 weeks from start to finish. However, we can tailor our process and timeline based on your needs.

Smaller properties — such as single‑family rentals or small retail spaces — can often be completed in as little as 1-2 weeks.

‍Larger commercial or multi‑family properties typically require 3-6 weeks due to the complexity of the engineering review and the volume of documentation involved.

Our process is designed to be efficient and seamless. Our team works directly with you and your CPA (if needed), keeps you informed at every stage, and prioritizes your project to meet critical tax filing deadlines so you can start realizing the benefits of accelerated depreciation as quickly as possible.

How much of my property can typically be accelerated?

On average, a cost segregation study can reclassify 20–40% of a property’s value into shorter‑life asset categories eligible for accelerated depreciation.

New construction projects often fall at the higher end of that range.

Acquired or renovated properties may vary depending on several factors, including:

‍Level of improvements – The more you’ve invested in upgrades, renovations, or build‑outs, the greater the potential for reclassification.

‍Building’s original cost allocation – Properties with a higher proportion of interior finishes, specialized systems, and site improvements generally yield a greater accelerated depreciation benefit.

‍Land value – Since land itself is not depreciable, properties in high‑land‑value markets (where land represents a large percentage of the purchase price) may have less overall value available for depreciation.

‍Geography and market type – Regional construction standards, building codes, and property use can impact the percentage of cost that qualifies. For example, properties in certain markets may have more extensive site improvements, higher‑end finishes, or specialty mechanical systems, which can increase the reclassifiable portion.

What kind of ROI is typical with your cost segregation studies?

Most clients see a significant return on investment (ROI) from working with us to complete a cost segregation study — often 10x–30x or more in actual tax savings compared to the cost of the study.

For example, a $5,000 study might generate $50,000–$150,000 (and in some cases even more) in accelerated depreciation deductions in the first year alone. For most properties, the year‑one tax savings far exceed the study cost, making it one of the highest‑ROI tax strategies available to real estate investors.

Our engineering‑based approach ensures:

Maximum tax savings through optimal reclassification of eligible components
IRS‑compliant documentation to support your deductions in the event of an audit
Seamless integration with your CPA’s strategy for accurate and efficient tax filing

Can/do you work with my CPA?

Absolutely. While it’s not required, we recommend involving your CPA so your cost segregation study integrates seamlessly with your overall tax strategy.

We’re happy to assist them, providing IRS‑compliant documentation, detailed asset classifications, and all supporting schedules so they can confidently apply the deductions to your return.

What changed with bonus depreciation in July 2025?

Previously, bonus depreciation was scheduled to phase down: 80% in 2023, 60% in 2024, and 40% in early 2025. With the recent change, bonus depreciation has been restored to 100% for property placed in service after January 19, 2025 — effectively resetting the phase-out clock.

If you acquired or began construction on property around this January 2025 timeframe, there are a few extra rules to watch for. Eligibility depends on when construction began and whether a written binding contract was in place. These details can determine whether your property qualifies for 100% bonus depreciation or is limited to the lower percentages.This change is a major win for real estate investors because it allows you to:As of July 2025, bonus depreciation was restored to 100% for qualifying assets. This means that instead of deducting only a portion of eligible property components up‑front (and the rest over several years), you can now deduct the entire cost in the same year the asset is placed in service.

This change is a major win for real estate investors because it allows you to:
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Reduce taxable income significantly in the current year
Free up capital immediately for reinvestment in additional properties, renovations, or other business growth
Increase internal rate of return (IRR) by accelerating tax benefits that would otherwise take years to realize
Improve cash flow quickly, which can help with debt service, expansion, or other investments

It’s important to note that tax laws can change at any time. While 100% bonus depreciation is currently available, Congress could revise, reduce, or phase it out again in the future. That’s why many investors are accelerating acquisitions, renovations, and cost segregation studies now — to lock in the benefit while it’s available under current law.

How involved do I need to be throughout the process?

We’ve designed our process to be as easy and low‑effort as possible for property owners. Most of the heavy lifting is handled by our engineering and tax specialists — not you.

Your role typically involves:
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Providing basic property and construction documents (purchase agreements, closing statements, invoices, etc.)
Answering a few clarifying questions about the property’s use and improvements
Making the property available for a site review (which can often be done virtually)

From there, we handle the rest — engineering analysis, IRS‑compliant documentation, and coordination with your CPA to integrate the study into your tax strategy. In most cases, your total time commitment is just a few hours.

How does working with you make things easier for my CPA?

We know that clarity and precision are critical for your CPA to confidently integrate a cost segregation study into your tax strategy. That’s why our deliverables are built with accountants in mind.

With every study, we provide:
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Fully IRS‑compliant documentation with detailed asset reclassification
Runoff depreciation schedules in both PDF and editable CSV formats so your CPA can easily import the data into their tax software
Side‑by‑side before‑and‑after depreciation comparisons to show the direct tax benefit
Clear categorization by asset class and recovery period so there’s no guesswork
Direct collaboration — we’re available to answer your CPA’s questions at any stage, confirm alignment with your overall tax plan, and ensure smooth integration into current or prior‑year returns.

Additional CPA‑friendly benefits:
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Time savings — Your CPA can skip tedious asset reclassification and focus on higher‑value tax strategy, because we’ve already done the heavy lifting.
Risk reduction — Our engineering‑based analysis and compliant reporting reduce audit exposure and give your CPA a defensible position if the IRS ever challenges the deductions.

The result: no ambiguity, no delays, and a CPA who can focus on strategy — while you maximize tax savings with full confidence.

Can you help me apply cost segregation and bonus depreciation to prior years?

Yes, in many cases we can help you retroactively apply cost segregation to properties you already own and capture missed depreciation from prior years. This is done through what is called a look back study along with filing IRS Form 3115 (Application for Change in Accounting Method).It is a little more complex than doing a study in the same year you acquire the property, but our team does this often and knows how to streamline the process for you and your CPA. The benefit is that you can take a catch up deduction for all the accelerated depreciation you could have taken in previous years in a single tax year without having to amend past returns.For example, if you purchased a property three years ago and never did a cost segregation study, we can often help you deduct all of that missed accelerated depreciation this year, which could substantially reduce your current tax bill.This is an IRS-approved process, but it must be performed correctly and documented. Our team handles the entire process so it is smooth for you and your CPA.Yes, in many cases we can help you retroactively apply cost segregation to properties you already own and capture missed depreciation from prior years. This is done through what is called a look back study along with filing IRS Form 3115 (Application for Change in Accounting Method).

It is a little more complex than doing a study in the same year you acquire the property, but our team does this often and knows how to streamline the process for you and your CPA. The benefit is that you can take a catch up deduction for all the accelerated depreciation you could have taken in previous years in a single tax year without having to amend past returns.

For example, if you purchased a property three years ago and never did a cost segregation study, we can often help you deduct all of that missed accelerated depreciation this year, which could substantially reduce your current tax bill.

This is an IRS-approved process, but it must be performed correctly and documented with an engineering based study to stand up to an audit. Our team handles the entire process so it is smooth for you and your CPA.

Contact Our Team

Reach out. We'd love to help.

Frequently Asked Questions

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