Distinct from this site’s standard real estate depreciation calculator — cost segregation reclassifies part of a building’s cost into shorter-lived components, which depreciate, and deduct, much faster than the building shell itself.
How it works
A share of the building basis is treated as short-life property (5, 7, or 15-year, covering things like fixtures and parking lots) and depreciated over that shorter period, while the remainder stays on the standard schedule. The extra first-year deduction, multiplied by the marginal tax rate, gives the tax savings from segregation alone.
What this does not include
This shows the first-year effect only — cost segregation front-loads deductions, meaning later years get smaller deductions than straight-line would have given, which is a timing shift in when tax is paid, not a permanent reduction in total tax owed over the building’s life.
How to use this calculator
- Enter the building basis and standard depreciation schedule.
- Enter the share reclassified to short-life property, its average life, and your marginal tax rate.
Frequently asked questions
Does cost segregation reduce total tax owed?
Not usually by itself — it accelerates deductions into earlier years (a timing benefit, valuable for its time value of money), rather than reducing the total amount depreciated over the building’s life.
What typically gets reclassified?
Items like carpeting, certain fixtures, specialty electrical and plumbing, and land improvements like parking lots and landscaping — components with a shorter useful life than the building structure itself.
Is a formal cost segregation study required?
Generally, yes — a qualified study is what substantiates the reclassified share in an IRS examination; this calculator estimates the tax effect, not a substitute for that study.
