Companion to: Real Estate Decoded Chapter 12 (Cost Segregation and Bonus Depreciation) - Workbook tab (Tax Strategy Decoded)
Inputs
Outputs
Land basis (non-depreciable)
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5-year property (cost-seg)
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15-year property (cost-seg)
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27.5/39 year building
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Bonus-eligible basis (5 + 15 yr)
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First-year bonus depreciation
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First-year tax savings (vs. no cost-seg)
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How to read this tool: Cost segregation identifies and accelerates depreciation on the personal-property (5-year) and land-improvement (15-year) components of a real-estate acquisition. Combined with bonus depreciation (40% in 2026, phasing down), the first-year tax savings often exceed the study cost by 20-100x. The recapture risk at sale is real - the accelerated depreciation comes back as ordinary income (1245) or 25% gain (1250).
What this tool is for
Cost segregation and bonus depreciation are the highest-impact tax-strategy levers in real-estate investing. The discipline: engineering-based cost-seg study at acquisition, accelerated first-year depreciation against current-year taxable income (subject to passive-activity-loss rules), recapture planning at sale. This tool gives you the first-year savings projection.
Benchmarks the practitioner watches
- Typical cost-seg allocation: land 15-25%, 5-yr 10-15%, 15-yr 15-25%, building 40-60%
- Bonus depreciation 2026: 40% (40% of 5-yr and 15-yr property in first year)
- Bonus depreciation 2027: 20%; 2028: 0% absent statutory extension
- Cost-seg study cost: $5-15K typical institutional engineering study
- ROI on cost-seg: 20-100x study cost in first-year tax savings
Common mistakes
- Skipping cost-seg on properties under $1M (sometimes still positive ROI; check)
- Missing the passive-activity-loss limitation on non-real-estate-professional taxpayers
- Forgetting the recapture at sale - 25% rate on 1250 recapture, ordinary on 1245
- Not coordinating cost-seg with 1031 exchange strategy (deferred recapture)
Educational reference only. Not investment, tax, legal, or real-estate advice. Confirm market-specific cap rates, lender terms, and tax overlay with your own advisors before acting.