Personal Finance & Estate › Income, gift, estate & real-estate taxes › Depreciation & recapture (27.5 / 39 years)
Cost segregation & 100% bonus depreciation
100% bonus restored 2025· Tax rule
Depends on youExperts differ; the right answer depends on your situation.
An engineering study splits a building into faster-depreciating parts, which 100% bonus depreciation can deduct in year one.
See it on the Personal Finance & Estate map →How it works
Instead of depreciating everything over 39 or 27.5 years, a cost-segregation study reclassifies items like carpets, cabinets, some wiring and plumbing, parking lots and landscaping into 5-, 7- and 15-year property. The 2025 law restored 100% bonus depreciation for property acquired after January 19, 2025, so those parts can be written off immediately. Studies on older buildings can catch up missed deductions without amending returns. Traps: California allows no bonus, losses may be passive, and recapture comes at ordinary rates.
Why it matters for you
Depends on you: big first-year deductions help if you can use the losses and plan to hold; experts differ when a sale or 1031 is near. Ask your CPA.
Think of it like
Like a reserve study that splits a building into roof, HVAC and paving, each on its own clock.
Rules, limits and sources (2026)
The Tax Court's Hospital Corporation of America decision (1997) validated cost segregation; the IRS publishes a Cost Segregation Audit Techniques Guide; bonus depreciation began in 2002.
Watch out for
How aggressive allocations fare in audits varies, and whether 'permanent' 100% bonus lasts depends on future Congresses.
Connections (2)
▸Cost segregation & 100% bonus depreciation accelerates Depreciation & recapture (27.5 / 39 years)Standard practice
How they connect
Cost segregation moves parts of a building from 39- or 27.5-year schedules into 5-, 7- and 15-year classes, and bonus depreciation lets those be deducted in year one. That pulls deductions forward, but much of the reclassified amount is recaptured at ordinary rates, up to 37%, rather than 25%, when you sell.
When it applies
Validated by the 1997 Hospital Corporation of America Tax Court case; bonus depreciation began in 2002 and returned to 100% in 2025.
How sure?
IRC Secs. 168(k), 1245 and 1250; the IRS Cost Segregation Audit Techniques Guide describes acceptable studies.
Watch out for
Whether front-loading pays off depends on future tax rates, holding period and a possible 1031 or step-up; advisors weigh it case by case.
▸One Big Beautiful Bill Act (2025 tax law) restored 100% bonus depreciation for Cost segregation & 100% bonus depreciationLaw or rule (2026)
How they connect
Bonus depreciation had been phasing down, to 40% in 2025 and 20% in 2026. The 2025 law restored 100% permanently for property acquired after January 19, 2025, so short-lived components found by a cost segregation study, such as fixtures and parking lots, can be fully deducted in year one.
When it applies
Signed July 4, 2025; applies to qualifying property acquired and placed in service after January 19, 2025. California does not allow bonus depreciation.
The rule
IRC Sec. 168(k) as amended; Form 4562; the IRS cost segregation audit techniques guide.
Watch out for
Front-loaded deductions raise recapture on sale and may be limited by passive-loss rules; whether a study pays depends on holding period and tax status.