Real Estate Series: Part 2 - Cost Segregation Study

By Scott Hennessy On November 14, 2023
Scott is a CPA & Manager at BSB.

What is a Cost Segregation Study?

Cost Segregation Study is a tax planning strategy that gives real estate owners the chance to accelerate depreciation deductions​. The best time to do a Cost Segregation Study is the first year the property is placed in service.​

The Normal depreciation period for real property:​

  • 27.5 years for residential properties​
  • 39 years for commercial properties.​

The goal of a Cost Segregation Study is to identify all property-related costs that can be accelerated and depreciated over 5,7 and 15 years. ​

Cost Seg Study Illustration: Breaking Down Components of a Building

A Commerical building with Cost Seg Study has several components with their own depreciation:

  • Building Structure - 39 years
  • HVAC & Plumbing - 5-7 years
  • Lighting Fixtures - 5-7 years
  • Furniture & Fixtures - 5-7 years
  • Land Improvements - 15 years

Cost Seg Study Illustrated

In the example, the additional tax savings in the first year could be upwards of $35-40K with a Cost Segregation Study.

Cost Segregation Study Benefits

The best time to do a Cost Segregation Study is the first year the property is placed in service. However, you have the ability to perform a study retroactively and receive tax benefits.


  • Accelerated Depreciation​
  • Increased Cash Flow​
  • Improved Return on Investment​
  • More accurate financial reporting​
  • Compliance with Tax Regulations​
  • Adaptability to various property types (residential, commercial, manufacturing)​

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