Cost segregation has been a sound strategy for decades. Right now it is the most valuable it has been since 2022, and the reason is a single line in last year’s tax bill.
What changed
Bonus depreciation had been phasing down. It was 80 percent in 2023, 60 percent in 2024, and was scheduled to hit 40 percent in 2025. The One Big Beautiful Bill Act reversed that. For qualifying property acquired and placed in service after January 19, 2025, 100 percent bonus depreciation is back, and it is permanent. No sunset, no phase-down schedule to plan around.
For a building owner, that means the components a cost segregation study reclassifies into short recovery periods can be deducted in full in the first year, rather than spread over five, seven, or fifteen years.
A quick refresher on how cost segregation works
When you buy or build a commercial property, the default treatment is to depreciate the whole thing over 39 years (27.5 for residential rental). A cost segregation study breaks the building into its components and assigns each one the shortest recovery period the tax code allows.
Carpet, cabinetry, decorative lighting, specialized electrical, and process-related plumbing often land in 5-year property. Furniture and certain equipment fall into 7-year property. Land improvements such as parking lots, sidewalks, landscaping, and fencing are 15-year property. What remains is the structure itself, still on the 39-year schedule.
Depending on the property type, a study commonly moves 20 to 40 percent of the depreciable basis into those shorter categories. With bonus depreciation at 100 percent, that entire reclassified amount is deductible in year one.
The numbers on a real property
Take a $3 million light industrial building purchased in March 2026, with $2.5 million of depreciable basis after backing out land. Without a study, first-year depreciation is roughly $64,000. If a study reclassifies 30 percent of basis into short-life categories, that is $750,000 eligible for bonus depreciation in year one, on top of the regular depreciation on the remainder.
Every situation is different, and the value of the deduction depends on your tax rate, your income, and how the passive activity rules apply to you. That is a CPA conversation. The point is the order of magnitude.
Who should be looking
The AICPA’s guidance to its own members is direct: CPAs should routinely recommend cost segregation when acquisition expenditures, including leasehold improvements, equal or exceed $750,000. Most owners have never heard that. If you bought, built, or substantially renovated a commercial property in the past few years, the study is worth pricing out.
Property types that tend to segregate well include restaurants, medical and dental offices, manufacturing facilities, auto dealerships, hotels, self-storage, and retail with significant tenant build-out. Multifamily also does well because of the volume of unit-level finishes.
The manufacturing bonus
The same bill added a separate provision for qualified production property. Certain new manufacturing, production, and refining facilities where construction begins after January 19, 2025, and before January 1, 2029, may qualify for 100 percent expensing of the structure itself, not just the components. That is a narrower rule with specific requirements, and it deserves its own analysis, but manufacturers planning a new plant should know it exists.
Things to think through before you commit
Passive loss rules. If you are not a real estate professional and the property is a passive activity, large first-year losses may be suspended until you have passive income or dispose of the property. The deduction is still real, but timing matters.
Depreciation recapture. Accelerated deductions are recaptured at sale. Most owners still come out ahead because of the time value of money and because the recapture rate on some components can be lower than the ordinary rate, but it is a factor.
Holding period. Cost segregation makes the most sense on properties you plan to hold. A study on a building you will flip in 18 months rarely pays.
State conformity. Not every state follows federal bonus depreciation. Your state return may look different.