Cost Segregation Study Estimator
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%
37%
100%
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First-Year Depreciation (with Bonus)$172,604.80
First-Year Tax Savings$63,863.78
Without Cost Seg (Year 1)$15,756.00
10-Year NPV Benefit$35,993.15
ROI on Study1177%
Asset Class Allocation
building cost$800K
5-Year$96,000.00
7-Year$24,000.00
15-Year$40,000.00
Long-Life$640,000.00
10-Year Tax Savings Schedule
| Year | Accelerated↕ | Straight-Line↕ | Tax Savings↕ | Cumulative↕ |
|---|---|---|---|---|
| 1 | $172,604.80 | $29,090.91 | $53,100.14 | $53,100.14 |
| 2 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 3 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 4 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 5 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 6 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 7 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 8 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 9 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
| 10 | $23,270.40 | $29,090.91 | $0.00 | $53,100.14 |
A cost segregation study reclassifies parts of a building from the slow 27.5- or 39-year real-property schedule into 5-, 7-, and 15-year asset classes that depreciate far faster. This estimator splits your building cost across those classes using IRS Audit Techniques Guide allocation percentages for your property type, applies bonus depreciation to the short-life assets, and projects the extra deductions, tax savings, and 10-year net present value against doing nothing.
Formula
First-year (cost seg) = Σ [ bonus%·Cᵢ + MACRSᵢ(Cᵢ·(1 − bonus%)) ] + MACRS_longlife
- Cᵢ
- Dollars allocated to asset class i (5, 7, or 15-year) = building cost × class %
- bonus%
- Bonus depreciation rate applied to short-life property (e.g. 60% in 2025)
- MACRSᵢ
- First-year MACRS rate for class i (20% for 5-yr, 14.29% for 7-yr, 5% for 15-yr, half-year convention)
- MACRS_longlife
- First-year straight-line MACRS on the long-life building (mid-month, 27.5 or 39-year)
How it works
- Pick your property type (apartment, office, hotel, restaurant, and others). Each type carries a typical allocation to 5-year, 7-year, 15-year, and long-life property drawn from cost segregation study averages.
- Enter the purchase price and the land value percentage. Land is non-depreciable, so building cost = purchase price × (1 − land %), and the allocation percentages are applied to that building cost.
- Set the marginal tax rate, bonus depreciation percentage, and study cost. The tool applies bonus depreciation to the 5/7/15-year buckets, runs MACRS on the remainder, and reports first-year deductions, a 10-year savings schedule, NPV benefit, and the ROI on the study fee.
Worked example
A $1,000,000 apartment building with 20% land value, 60% bonus depreciation, a 37% marginal rate, and a $5,000 study fee.
- Building cost = 1,000,000 × (1 − 0.20) = $800,000.
- Apartment allocation: 12% to 5-yr ($96,000), 3% to 7-yr ($24,000), 5% to 15-yr ($40,000), 80% long-life ($640,000).
- Apply 60% bonus to the $160,000 short-life total, run first-year MACRS on the 40% remainder plus the long-life building.
- First-year deduction with cost seg ≈ $118,457 vs ≈ $15,756 with no study; first-year tax savings ≈ $43,829 against a $5,000 fee.
First-year depreciation jumps to about $118,457 (vs $15,756 without), the 10-year NPV benefit is roughly $31,984, and ROI on the $5,000 study is about 777%.
Frequently asked questions
- What is bonus depreciation and why does it matter here?
- Bonus depreciation lets you immediately expense a percentage of qualifying short-life property (5, 7, and 15-year classes) in the first year. The rate has been phasing down from 100%, so this calculator lets you set it (for example 60% for 2025) and applies it before regular MACRS on the remainder.
- How are the allocation percentages chosen?
- They are midpoints of typical ranges reported by qualified cost segregation studies and the IRS Audit Techniques Guide for each property type. A restaurant or hotel front-loads far more into 5- and 7-year property than an office or warehouse, which is why the tool asks you to select a type.
- Is this a substitute for an engineering-based study?
- No. This is a planning estimator that uses industry-average allocations. A defensible cost segregation study still requires a qualified engineering firm to inspect the property and document the asset breakdown for your tax return.
- Why is the NPV benefit smaller than the first-year savings?
- Cost segregation mostly accelerates deductions rather than creating new ones, so the long-run total depreciation is similar either way. The benefit is the time value of taking deductions sooner, which is why the 10-year NPV uses a 5% discount rate and is much smaller than the headline first-year number.