A cost segregation study typically costs $2,500 to $7,500 for a residential property, and it does not create a new deduction so much as move a large share of it into the first year. Whether that timing shift is worth the cost depends on your purchase price, how the study will reclassify the building, and, most of all, whether you can actually use the resulting loss this year: as a real estate professional, through the STR loophole, against the $25,000 passive allowance, or not at all. The free cost segregation calculator runs all four situations against the real 2025 and 2026 brackets, including a 10-year schedule and recapture on sale.

This post walks through how a study works, a worked example on the calculator’s own default numbers, who can actually use the deduction, and the Form 3115 catch-up if you already own the property.

How cost segregation works

Without a study, a rental building is depreciated evenly: 27.5 years for a long-term residential rental, or 39 years for a short-term rental or a commercial building. A study is an engineering-based breakdown of the purchase price into the parts the tax code treats as shorter-lived: 5-year personal property (appliances, carpet, furnishings, some cabinetry), 7-year property (mostly commercial furniture and equipment), and 15-year land improvements (driveway, fencing, landscaping, pool). Those reclassified parts qualify for bonus depreciation, which is 100% for property acquired after January 19, 2025, so most of their cost is deducted in year one instead of over decades.

The building itself stays on its original 27.5- or 39-year schedule; only the reclassified pieces move. That is why the study’s value depends heavily on how much of the property those pieces represent, which is exactly what the calculator lets you set.

A worked example: $750,000, real estate professionals

The calculator’s default scenario is a $750,000 single-family rental, 20% land value, placed in service in March 2026, owned by a married couple earning $400,000 who qualify as real estate professionals. Their study reclassifies 12% of the building to 5-year property and 8% to 15-year land improvements, and costs $5,000.

That 6.8x return only holds because this couple can use the full loss: they qualify as real estate professionals and materially participate. Change that one fact and the math changes with it.

Who can actually use the deduction

The study creates the depreciation. What you can do with the resulting loss depends on your situation, and this is where most of the calculator’s value is:

Notice the STR row has no $25,000 allowance fallback: a short-term rental with a 7-day average stay is not a “rental activity” under the passive loss rules in the first place, so without material participation its loss is simply passive, full stop. For the REPS and STR paths, see Real Estate Professional Status, the STR loophole guide, and the material participation tests. Depreciation always shelters the rental’s own net income either way, even when the extra loss above that is passive.

Already own the property? Form 3115 catches you up

A study does not have to happen the year you buy. For a rental placed in service in an earlier year, back to 2018, a look-back study is filed as an automatic change in accounting method on Form 3115. All the depreciation the study shows you could have taken, including bonus depreciation at the rate in effect when you placed the property in service (100% from 2018 through 2022, 80% in 2023, 60% in 2024), is deducted at once in the current year as an IRC 481(a) adjustment. You do not amend prior returns. The calculator’s placed-in-service field runs back to 2018 and shows this catch-up amount directly. The one exception: if you elected out of bonus depreciation for that class of property in the year you placed it in service, Form 3115 cannot reverse that election.

The 10-year schedule, and what recapture costs

The calculator also shows the trade-off across time, not just year one. In the default example, the study moves $77,275 of depreciation earlier over a 10-year hold, compared to no study. If the property sells at that point, $89,600 of the reclassified depreciation (all of the 5- and 7-year property, and the bonus portion of the 15-year land improvements above straight line) is recaptured at ordinary income tax rates, while the building’s depreciation is recaptured at up to 25%. A study is largely a timing benefit plus a rate difference, not a permanent reduction in tax, unless you exchange the property under IRC 1031 or hold it until death, when the basis step-up can erase the recapture entirely.

When to talk to your CPA

Run your own price, land percentage, reclass split and placed-in-service date through the calculator first. It will tell you the extra deduction, the savings after the study’s cost, and whether your situation lets you use the loss at all this year, which is usually the deciding question, not the size of the deduction itself. From there, a real estate CPA and a cost segregation provider can confirm your state’s bonus depreciation conformity, whether a full study or a lower-cost virtual study fits a smaller property, and whether this year or next is the better year to file. The Trusted Tax Experts section in REPSLog lists firms that work with REPS and STR loophole clients specifically.

Related reading

• Real Estate Professional Status
• The STR loophole guide
• Material participation tests
• Cost segregation studies: how they multiply REPS tax savings

See what a study would save you this year, after its cost, on the cost segregation calculator, then log the hours that let you use it. Try REPSLog free for 14 days on iPhone, Android or the web app.

This article and the calculator it links to are general information, not tax advice. They give an estimate for a conversation with your CPA and a cost segregation provider, not a filed position.