By Amar Patel I Principal, Cost Segregation
Cost segregation results differ by property type because every building contains a different mix of assets. For eligible properties, cost segregation moves qualifying components into shorter 5-, 7-, or 15-year depreciation periods instead of leaving the full building on a 27.5- or 39-year schedule. Building basis, use, finishes, equipment, and site improvements shape the result. IRS Publication 946 explains the applicable federal recovery periods.
CostSegregation.com uses property-specific inputs and component-level analysis for qualifying investment properties with up to $1.5 million in building basis, excluding land.
Key Takeaways
- Cost segregation results depend on the assets inside the property, not purchase price alone.
- Rentals often contain shorter-life interior assets, while offices and self-storage facilities often include more specialty systems or site improvements.
- CostSegregation.com lets investors evaluate the opportunity for free and only charges users who choose to download the report.
Cost Segregation Examples by Property Type
The following results are real examples from CostSegregation.com. In addition to displaying the power of the software, these examples show how cost seg deductions change by property type:
| Property Type | Purchase Price, Less Land | First-Year Deductions | Savings Per Purchase Price (%) |
|---|---|---|---|
| Residential Rental | $370,000 | $80,000 | 21.6% |
| Office Building | $1.2 million | $218,000 | 18.2% |
| Self-Storage Facility | $830,000 | $192,000 | 23.1% |
Note: These examples are not guarantees. This table displays the importance of property-specific cost segregation analysis instead of a generic percentage.
The following results are real examples from CostSegregation.com. In addition to displaying the power of the software, these examples show how cost seg deductions change by property type:
| Property Type | Purchase Price, Less Land | First-Year Deductions | Savings Per Purchase Price (%) |
|---|---|---|---|
| Residential Rental | $370,000 | $80,000 | 21.6% |
| Office Building | $1.2 million | $218,000 | 18.2% |
| Self-Storage Facility | $830,000 | $192,000 | 23.1% |
Note: These examples are not guarantees. This table demonstrates the importance of property-specific cost segregation analysis instead of relying on a generic percentage.
Residential Rental Cost Segregation Example
A residential rental property often includes appliances, removable flooring, window treatments, cabinetry, patios, fencing, and landscaping. For eligible properties, these components move onto shorter depreciation schedules instead of remaining with the building’s 27.5-year structure.
In CostSegregation.com’s residential example, a $370,000 property purchase, excluding land, generated $80,000 in first-year deductions. The asset mix changes from one rental to another, especially when the property is furnished, recently renovated, or includes substantial exterior improvements.
Office Building Cost Segregation Example
Office buildings present a different mix of shorter-life assets, including carpeting, data and specialty electrical systems, decorative lighting, millwork, furniture, parking areas, and other site improvements.
For a $1.2 million office building purchase, excluding land, CostSegregation.com produced $218,000 in first-year deductions. Office layouts, tenant improvements, technology infrastructure, and specialized finishes often create a broader range of cost segregation opportunities than a standard rental property.
Self-Storage Cost Segregation Example
Much of a self-storage facility’s cost seg opportunity often sits outside the individual units. Paving, fencing, access gates, exterior lighting, signage, drainage, and other land improvements commonly play a major role in the analysis.
CostSegregation.com’s $830,000 self-storage example, excluding land, resulted in $192,000 in first-year deductions. That equals 23.1% of the purchase price, compared with 18.2% for the $1.2 million office example, showing that purchase price alone does not determine the percentage of first-year deductions identified through cost segregation.
Why Use CostSegregation.com?
As the examples show, property-specific data is critical to the quality of a cost segregation study. CostSegregation.com’s expert-built methodology provides a tailored report instead of a one-size-fits-all allocation. Built by former IRS engineers and Certified Cost Segregation Professionals, the software delivers reliable analysis designed to maximize eligible tax savings.
Launched in 2016, the platform is built and backed by KBKG, the oldest independent cost segregation provider in the nation. CostSegregation.com is the first software solution built to offer direct-to-investor cost segregation.
CostSegregation.com is the top-rated cost segregation software solution. It is the only cost seg software to average 5/5 stars on Google reviews; and has also maintained a 100% IRS audit success rate since 2016.
See Your Property’s Potential Savings
Every property has a different depreciation profile. Use CostSegregation.com’s free calculator to enter basic property information and instantly review your potential savings. For investors (or their CPA) ready to begin a study, the full software is free to use – payment is only required if the user is happy with the results.
Frequently Asked Questions
How much does cost segregation save by property type?
There is no fixed amount. For eligible properties, the result depends on building basis after land, property type, component mix, placed-in-service date, and the owner’s tax situation. CostSegregation.com’s published examples range from $80,000 to $218,000 in first-year deductions.
Why does self-storage produce different cost segregation results than a rental?
Self-storage facilities often include more paving, fencing, gates, lighting, drainage, and site improvements. Residential rentals place more emphasis on appliances, flooring, cabinetry, furnishings, and interior components.
Can short-term rental owners use CostSegregation.com?
Yes. Short-term rental owners may use CostSegregation.com when the property qualifies. Cost segregation can be especially valuable for short-term rentals because they often include assets that qualify for shorter depreciation periods. A cost seg report also supports the accelerated-depreciation portion of the STR loophole strategy. Average-stay, material-participation, and other requirements should be reviewed with a tax advisor.
