Cost Segregation Studies
Cost segregation identifies building components that qualify for shorter depreciation lives, which moves deductions into earlier years. Based on industry data, engineering-based studies typically reclassify 20-40% of building costs. Whether that helps depends on your bracket, how long you hold the property, and recapture when you sell.
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In short: A cost segregation study reclassifies part of a building's cost into shorter depreciation categories so property owners can take larger deductions sooner. We coordinate engineering-based studies through partner engineers for rental and commercial property owners, starting with a flat-fee Rental / Cost Seg Scan that screens whether your property is a strong candidate before you commit to a full study.
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What's Included
- Depreciation schedule and cost basis review for one property
- Passive-loss position analysis
- Cost segregation reclassification potential estimate
- Written findings with a recommended next step
- Scan fee credited toward your cost seg memo ($750 - $1,500)
Timing: Scope and timing are confirmed in writing before an engagement begins.
Not included:
- Full engineering-based cost segregation study (quoted separately)
- Tax return preparation and Form 3115 filing (quoted separately)
What Happens After You Purchase
- 1Secure checkout via Stripe
- 2Your client portal invitation arrives by email
- 3Upload your documents securely
- 4Prepared and delivered by an Enrolled Agent
"Arc & Ledger provided exceptional service, making my tax preparation seamless and stress-free."
- Christian S.
How Cost Segregation Works
Commercial buildings are typically depreciated over 27.5 years (residential rental) or 39 years (nonresidential). But not every component of your building should be depreciated that slowly. Electrical systems, plumbing, flooring, parking lots, landscaping, and specialized fixtures can all be reclassified into 5, 7, or 15-year categories.
A cost segregation study, performed by licensed engineers working with the firm, identifies the components that qualify for accelerated depreciation. The result moves more of your deductions into the early years of ownership, which can improve cash flow.
Hypothetical Example: $2M Commercial Building
Without cost seg: ~$51,000/year in depreciation. With cost seg on a building acquired after January 19, 2025, reclassifying 20-40% of cost into 5-, 7-, and 15-year property can make roughly $400,000-$800,000 deductible in year one under 100% bonus depreciation, subject to the passive activity loss rules.
Rental / Cost Seg Scan
Not every property benefits equally. Start with a feasibility scan of one property and get written findings before committing to a full study.
- Depreciation schedule and cost basis review
- Passive-loss position analysis
- Cost seg reclassification potential estimate
- Written findings with a recommended next step
- Credited toward the memo ($750 - $1,500)
How It Works
From feasibility scan to tax return, in four steps.
Rental / Cost Seg Scan
Start with the $299 scan: we review your property details, cost basis, passive-loss position, and current depreciation to determine if a study is worthwhile.
On-Site Inspection
Our partner engineers conduct a detailed inspection of the property, documenting every component and system.
Engineering Analysis
Components are classified into appropriate depreciation categories using IRS-compliant methodology and supporting documentation.
Tax Integration
We incorporate the study results into your tax return, claim the accelerated deductions, and file any required accounting method changes.
Properties That Benefit Most
Cost segregation is most effective for properties with significant non-structural components.
Office Buildings
HVAC systems, electrical wiring, specialty lighting, and tenant improvements often qualify for shorter depreciation lives.
Retail & Restaurants
Kitchen equipment, decorative finishes, signage, and specialized plumbing are strong candidates for reclassification.
Apartment Complexes
Appliances, carpeting, cabinetry, and site improvements like parking and landscaping accelerate depreciation significantly.
Warehouses & Industrial
Loading docks, specialized flooring, and heavy-duty electrical systems are typically reclassifiable.
Medical & Dental
Specialized plumbing, gas systems, and built-in medical equipment create substantial reclassification opportunities.
Hotels & Hospitality
Furniture, fixtures, decorative elements, and specialized systems create some of the highest reclassification percentages.
Frequently Asked Questions
Common questions about this service area.
Related Guides
Learn more about this topic with our in-depth guides.
California Business Tax Guide
How cost segregation interacts with California depreciation rules and the Section 179 deduction limits.
Read GuideOne Big Beautiful Bill Act (OBBBA) Guide
Bonus depreciation restored to 100% for property acquired after January 19, 2025: how cost segregation studies interact with the new rules.
Read GuideRelated Services
Explore other ways we support our clients.
Rental Depreciation Correction (Form 3115)
Missed or mis-computed depreciation on a rental you already own? Catch it up in one tax year with a Form 3115 method change and Section 481(a) adjustment, no amended returns.
Learn MoreTax Planning & Advisory
Tax planning for real estate portfolios, coordinating depreciation, deductions, and credits.
Learn MoreBusiness Tax & Compliance
Professional preparation of business returns that incorporate your cost segregation benefits.
Learn MoreBookkeeping & Accounting
Accurate tracking of depreciation schedules and property basis for your real estate holdings.
Learn MoreStart With a Rental / Cost Seg Scan
For a flat $299, we review one property's depreciation, passive-loss position, and cost segregation potential, then deliver written findings. The fee is credited toward your memo if you proceed.
Arc & Ledger takes on work selectively. Each request is reviewed for fit with our practice areas, and scope and timing are confirmed in writing before an engagement begins.
“Arc & Ledger provided exceptional service, making my tax preparation seamless and stress-free.”– Christian S., Google Review
A secure Client Portal invitation is sent only after Arc & Ledger accepts the engagement or you purchase an available fixed-scope service. A call, waitlist entry, or contact form alone does not create portal access.