Before the One Big Beautiful Bill Act (OBBBA), cost segregation studies offered plenty of value. But as bonus depreciation began to phase out, their benefit started to shrink, too. Now that the OBBBA put 100% expensing back on the table, the potential payoff from reclassifying short-lived assets is stronger than ever.

How did the OBBBA change cost segregation studies?

The One Big Beautiful Bill Act didn’t change anything about cost segregation studies — full stop.

But it did make them more enticing.

The OBBBA restored 100% depreciation, which was set to drop from 40% in 2025, to 20% in 2026, and then disappear in 2027. Not only did it bring 100% bonus depreciation back for most asset purchases going forward, it made the deduction permanent. Unless future legislation is passed, 100% bonus depreciation will be available now and in all future tax years. The restored deduction helps taxpayers afford new asset purchases, but it also makes cost segregation studies a heck of a lot more powerful than they were before the bill was passed.

Most taxpayers commission a cost segregation study for one primary purpose: to accelerate depreciation deductions as quickly as possible. Now that 100% bonus depreciation is back, cost segregation studies got a lot more powerful. Taxpayers who commission a study will be able to fully deduct most of the short-lived assets that are identified in the study. This can produce massive tax savings, and — in turn — free up cash that businesses can use in other areas of their business, like exploring new service lines, purchasing other assets, or funding a new employee incentive program.

Should you commission a cost segregation study?

If you’ve been considering a cost segregation study, the timing couldn’t be better than it is today. Now that 100% bonus depreciation is permanent under the OBBBA, you’ll be able to deduct the full cost of most short-lived assets right away.

But does that mean you should commission a study today? Not necessarily. While it can certainly benefit some taxpayers, it may not be the right move for everyone. Cost segregation studies can be costly and complex, and accelerating deductions now means taking fewer deductions later.

A Key Consideration: Bonus Depreciation Recapture

When you take bonus depreciation, you’re deducting 100% of the asset’s cost upfront. If you sell that asset before it would have been fully depreciated under traditional methods, you’ll have to recapture a portion of those bonus depreciation deductions. This recapture amount is taxed as ordinary income—potentially increasing your tax bill in the year of sale.

This is especially important to keep in mind if you expect to renovate, remodel, or dispose of assets in the near term.

Cost Segregation Study FAQs

What are cost segregation studies?

A cost segregation study is a tax analysis that identifies and reclassifies property costs into the most advantageous recovery periods. The goal? To accelerate depreciation deductions.

Most taxpayers use cost segregation studies when purchasing a building. Instead of classifying the entire building purchase as 39-year property (which is not eligible for bonus depreciation), they commission a cost segregation study to separate shorter-lived assets from the cost of the building itself — this includes things like flooring, appliances, and land improvements. Once these shorter-lived assets have been identified, the taxpayer can then accelerate the depreciation of those assets using bonus depreciation, Section 179, or simply using a shorter recovery period under MACRS.

How is a cost segregation study performed?

Most cost segregation studies follow these steps:

1. Inspect the property: The professional performing the study will gather building plans, construction costs, blueprints, and other records. Typically, an engineer will physically visit the property during this time, too.
2. Identify assets: After inspecting the property, the professional will identify assets that are separate from the building or the land.
3. Allocate costs: The professional will allocate the purchase price of the property to all identified assets.
4. Tax classifications: The tax team will place assets into the appropriate tax depreciation recovery buckets (e.g., 5-year assets, 7-year assets, etc.)

But the specific methodology could change depending on the preparer you use, your goals, and your tolerance for risk. We discuss a few of the different study methodologies here.

What property is identified in a cost segregation study?

During a cost segregation study, identified assets are typically separated into the following categories:

* MACRS = the Modified Accelerated Cost Recovery System

What are the benefits of a cost segregation study?

The main benefit of a cost segregation study is to optimize depreciation deductions. For many taxpayers, this means accelerating deductions so that you can recover costs as quickly as possible. Accelerating depreciation will lower your current-year tax bill, which boosts current-year cash flow so that you can invest in other areas of your business.

But accelerating depreciation isn’t the only reason you might pursue a cost segregation study. Depending on your tax situation, delaying deductions (like by foregoing bonus depreciation) could be a better tax strategy. For example, if you anticipate that you’ll be in a much higher tax bracket in future years, saving depreciation deductions until then might be the better choice. Your tax advisor will help you determine the optimal strategy.

A cost segregation study is also great for giving you a complete and accurate list of your assets. This can also help you strategize for:

• Timing and planning for asset purchases
• Timing and planning for asset disposals or sales
• A future like-kind exchange of the land or building

What are the potential drawbacks of a cost segregation study?

Cost segregations are generally low risk — in the end, they are simply providing you with knowledge — but a few downsides are:

• Smaller deductions in future years: If you accelerate depreciation as quickly as you’re permitted, you won’t benefit from those depreciation deductions in future years.
• Upfront cost: There are professional fees associated with a cost segregation study.
• Future depreciation recapture: You may have to reverse some of your depreciation deductions (i.e., recapture it) if you sell an asset within a certain amount of time after taking bonus depreciation or Section 179.
• Potential IRS scrutiny: The IRS may want to look more closely at your tax return if you have large depreciation deductions in one year.

Making the Right Decision for Your Business

As powerful as cost segregation studies have become under the OBBBA, they still work best when they support your broader tax and business strategy. The right timing, the right methodology, and the right long-term planning can make a meaningful difference in maximizing the benefits while limiting future surprises such as depreciation recapture. If you are considering a study or want to understand how the OBBBA may affect your depreciation options, contact your CRI advisor. Our team is ready to help you evaluate your choices and determine the most strategic path forward for your business.