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Cost segregation tax savings calculator
Estimate what a cost segregation study plus bonus depreciation could mean for your rental’s first-year deduction — and see the catch most calculators skip: without material participation, the loss usually can’t touch your W-2 income.
Before you scroll: this tool produces simplified, educational estimates. It is not a cost segregation study and not tax, legal, or financial advice. Tax outcomes depend on your specific facts and your state — always confirm with your CPA.
Your property
Exclude closing costs for a conservative estimate.
Land is never depreciable. 15–25% is common; check your county assessment.
Share of the building moved to 5-, 7-, and 15-year property. Studies commonly land between 20% and 35%; furnished short-term rentals often sit at the higher end.
*100% applies to property acquired after Jan 19, 2025 — timing matters, ask your CPA.
STRs with average stays of 7 days or less generally depreciate over 39 years.
Federal + state, on the income these losses would offset.
Illustrative estimate
Potential extra first-year tax savings from cost segregation
$34,103
- Depreciable basis (building)
- $400,000
- Reclassified to 5/7/15-yr property
- $100,000
- Bonus depreciation (100%)
- $100,000
- First-year straight-line (39-yr remainder)
- $7,692
- First-year deduction with cost seg
- $107,692
- Without cost seg (straight-line only)
- $10,256
- Estimated tax savings at 35%
- $37,692 vs $3,590
Educational estimate only — simplified math, not a cost segregation study and not tax, legal, or financial advice. Actual results depend on your facts, your state, and your return. Confirm everything with your CPA before acting.
The deduction is only half the strategy — the hours are the other half.
To use these losses against W-2 or active income, you generally must materially participate — and if the IRS asks, you’ll need contemporaneous records of your hours to prove it. That’s exactly what HourProof does: timestamped logs, per-property goals, evidence attachments, and CPA-ready reports.
How the strategy works — in three steps
Step 1
Cost seg study
An engineering firm reclassifies 20–35% of your building into 5-, 7-, and 15-year property instead of 27.5/39-year.
Step 2
Bonus depreciation
The reclassified share can be deducted immediately — 100% for qualified property acquired after Jan 19, 2025.
Step 3
Material participation
To use the loss against active income you generally must materially participate — and be able to prove it with contemporaneous hour logs.
Steps 1 and 2 are handled by your cost seg firm and CPA. Step 3 is on you, all year — and it’s the step audits focus on. HourProof tracks it.
What this calculator assumes (read this)
Real returns are messier than a slider. These are the simplifications baked into the numbers above — each one is a conversation to have with your CPA:
- First-year figures assume a full year of straight-line depreciation on the non-reclassified building basis; the IRS mid-month convention will make your actual first-year amount lower.
- The bonus-eligible share is treated as a single pool; real studies allocate across 5-, 7-, and 15-year classes with different MACRS schedules for any non-bonus portion.
- Bonus percentages reflect federal law by placed-in-service year (100% for qualified property acquired after Jan 19, 2025; 60% for 2024; 80% for 2023). Acquisition-date rules are nuanced.
- Many states do not conform to federal bonus depreciation — your state bill can differ significantly.
- The estimate ignores passive activity limits, the $25,000 active-participation allowance and its phase-out, at-risk rules, excess business loss limits, NIIT, and AMT.
- Depreciation recapture on sale is not modeled, and neither is the cost of the study itself.
- Land percentage and reclassification percentage are your inputs — an actual study and appraisal determine the real numbers.
Cost segregation questions, answered plainly
What is a cost segregation study?
A cost segregation study is an engineering-based analysis that breaks a building into components. Instead of depreciating everything over 27.5 or 39 years, items like appliances, flooring, cabinetry, and land improvements are reclassified into 5-, 7-, and 15-year property — which front-loads depreciation deductions into the early years of ownership. Studies are performed by specialist firms, typically for a few thousand dollars.
What is the bonus depreciation rate right now?
Federal bonus depreciation is 100% for qualified property acquired and placed in service after January 19, 2025, after being restored by 2025 legislation. Property placed in service in 2024 generally gets 60%, and 2023 gets 80%. Acquisition-date rules and state conformity vary, so confirm the rate that applies to your purchase with your CPA.
Why does material participation matter for cost segregation savings?
A big first-year depreciation deduction usually creates a rental loss on paper. Rental losses are passive by default, and passive losses generally cannot offset W-2 or other active income. The common exceptions are materially participating in a short-term rental (for example, more than 100 hours and more than anyone else) or qualifying as a real estate professional with 750+ hours. Without one of those, the loss is typically suspended and carried forward.
What records do I need to claim material participation?
The IRS expects contemporaneous records — a log of what you did, when, and for how long, created at the time rather than reconstructed at tax season. Courts have rejected after-the-fact estimates. Hour logs with timestamps and supporting evidence (photos, receipts, messages) are what hold up. That record-keeping is what HourProof is built for.
What happens to the deduction when I sell the property?
Accelerated depreciation is not free money — it lowers your basis, and on sale, depreciation is generally recaptured and taxed (up to 25% for real property, and at ordinary rates for personal property components). Many investors still benefit from the time value of the deferral or from strategies like 1031 exchanges, but recapture is a real cost your CPA should model before you commit.
Does HourProof perform cost segregation studies or give tax advice?
No. HourProof is record-keeping software for tracking material participation hours and evidence. We do not perform cost segregation studies, prepare returns, or provide tax, legal, or financial advice. This calculator produces simplified educational estimates only — always confirm your numbers and eligibility with your CPA and a qualified cost segregation firm.
Running a short-term rental? The STR tax savings calculator models your actual brackets, the §461(l) loss cap, and recapture. Run a cost segregation practice? See how HourProof partners with cost seg firms →
The deduction comes from the study. Keeping it comes from your log.
Start your contemporaneous hour log today — free, on iOS, Android, and the web.
HourProof provides record-keeping software and educational content. Nothing on this page is tax, legal, accounting, or investment advice, and no CPA-client relationship is created by using it. Consult your own tax professional about your situation.