As with other industries, for commercial real estate (CRE) owners, investors, and developers, every dollar counts. A cost segregation study can substantially increase cash flows by accelerating depreciation deductions and releasing capital for reinvestment.
While 100% bonus depreciation often makes headlines, significant tax savings can result from a cost segregation study. By examining a building’s components and identifying assets eligible for shorter depreciation periods, owners can accelerate deductions rather than spread them over many years. Thanks to the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, these amounts are eligible for bonus depreciation for assets placed in service after Jan. 19, 2025. The larger the deduction, the more after-tax dollars you have available to reinvest in the property or other projects.
How Cost Segregation Works
A cost segregation study combines engineering and accounting expertise. Engineers review building blueprints and physical components like lighting, plumbing, wiring, HVAC systems, and land improvements to identify assets with shorter useful lives. Accountants then apply IRS rules to determine which assets qualify for accelerated depreciation or bonus depreciation.
Real estate owners and investors need to understand the factors that qualify a building for accelerated depreciation, including asset lifespans, related-party purchase rules, and state-specific restrictions.
The Financial Impact
Consider a $2 million commercial property. Depreciating it over the standard 39-year building lifespan provides approximately $51,000 in annual deductions. If a cost segregation study identifies 20% of the property, or $400,000, as eligible for accelerated depreciation, that amount is deductible much sooner. At a 35% tax rate, this equates to around $140,000 in immediate tax savings (assuming it is eligible for 100% bonus depreciation) — cash that can be reinvested right away.
A cost segregation study allows you to maximize current deductions rather than capitalizing and depreciating an asset over as many as 39 years. Of course, by accelerating the tax deductions, you lose those deductions in later years.
Cost Segregation FAQ for CRE Owners
What is cost segregation?
A cost segregation study involves a detailed analysis of a commercial property that breaks down its components into different categories with specific depreciation schedules. It enables owners to accelerate deductions and improve cash flow.
What are the benefits and downsides of cost segregation?
Benefits:
- Immediate tax savings through accelerated depreciation
- Increased cash flow for reinvestment or renovations
- Supports long-term portfolio planning
Downsides:
- Study costs (engineering and accounting fees)
- Additional complexity in tax filings
- Potential depreciation recapture when selling the property
Who conducts a cost segregation study?
A specialized team completes the study, including engineers who analyze building components and CPAs or tax advisors who apply IRS rules to identify assets that qualify for accelerated depreciation.
Will I have to repay the cost segregation deductions?
Not directly. However, accelerated deductions might be subject to depreciation recapture if the property is sold. Planning ahead can reduce tax impact and avoid surprises.
How soon should I complete a cost segregation study?
Ideally, the study is completed soon after acquiring or improving a property. The sooner it’s done, the faster you can maximize deductions and reinvest the savings into your portfolio.
Unlock the Value of Your CRE Portfolio
Cost segregation helps CRE owners reveal hidden value, boost liquidity, and make smarter investment choices. Whether buying a new building, renovating an existing property, or planning for long-term growth, a cost segregation study is a strategic tool that provides measurable results.
A cost segregation study is technical, but it can significantly influence cash flow and investment plans. Working with an experienced team ensures you maximize benefits while remaining compliant with IRS rules.
Discover how a cost segregation study can increase cash flow and maximize tax benefits for your commercial properties. Reach out to our team to learn about solutions customized for your portfolio.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.
