There’s Never Been a Better Time: Cost Segregation Studies Under the New OBBBA

The One Big, Beautiful Bill Act (OBBBA) contains several real estate-friendly provisions, but perhaps none as impactful as the permanent restoration of 100% bonus depreciation.

What is Cost Segregation?

Cost segregation is an IRS-recognized tax benefit strategy in which specific components of a building are reallocated into shorter depreciation periods for federal tax purposes.

Without a cost segregation study, conventional depreciation periods are lengthy – 27.5-years for residential real estate, and a whopping 39-years for commercial real estate. These assets will remain on the books for decades, depreciating ever-so-slightly each year.

However, a cost segregation study speeds up the process, shifting depreciation towards the earlier years of ownership.

In a cost segregation study, engineers assess all property assets and categorize them according to modified cost recovery system (MACRS) class lives:

• Some assets cannot be recategorized – “building shell” assets that compose the property structure must depreciate over 39 or 27.5-years.
• However, “personal property” assets can be segregated into a 5-year class life, and “land improvement” assets can be segregated into a 15-year class life.

By moving these assets into shorter-lived categories, a cost segregation study facilitates accelerated depreciation. The taxpayer isn’t creating new deductions, but getting them sooner, taking advantage of the time value of money.

Accelerated depreciation can create $30,000-$200,000 in federal tax benefits for every $1,000,000 invested into a property.

What is Bonus Depreciation?

Accelerated depreciation improves cash flow and lowers tax burden. But that’s just the beginning.

Bonus depreciation is an additional tax incentive above and beyond accelerated depreciation, and this is where the OBBBA really makes an impact.

If an asset is eligible for bonus depreciation, the taxpayer can immediately deduct a percentage of the asset’s purchase price. Bonus rates have varied over the years -- when the bonus depreciation rate was 40%, a taxpayer could immediately deduct 40% of the cost of that asset. When the bonus rate was 80%, a taxpayer could immediately deduct 80% of the cost of the asset. Obviously, the higher the bonus rate, the larger the benefit.

Which assets are eligible for bonus? Assets with a depreciation period of 20-years or less are generally eligible. So, assets that have been segregated into 5-Year Personal Property or 15-Year Land Improvements qualify for this incentive in addition to standard accelerated depreciation.

What is the Impact of OBBBA on Bonus Depreciation Rates?

Here’s where it gets really interesting.

Under the previous tax law, bonus rates were declining by 20% annually, and had dropped to 40% for assets placed-in-service in 2025.

In a watershed event, the OBBBA restored the bonus depreciation rate to 100% -- and made it permanent.

Moving forward, instead of writing off 40% -- or less – of an asset’s purchase price, taxpayers will be able to write off 100% of the cost of qualifying assets. 100% bonus is in play for properties in which significant construction began -- or written binding contracts were signed -- on/after 1/20/2025.

Consider an auto dealership:

• Depreciable basis of $23.1M
• Cost segregation study was performed -- 25% of assets were moved into 5-year, and 12% of assets moved into 15-year
• Placed-in-service 1/1/2025

The dealership was actually placed-in-service under the old tax law, and as such was eligible for 40% bonus. If it had been placed-in-service under the OBBBA, and benefited from 100% bonus, the first-year tax savings would have more than doubled.

Bonus Rate	First-Year Tax Savings
40% (Old Tax Law)	$1,375,338
100% (New Tax Law)	$2,891,855

Could I Benefit from a Cost Segregation Study Under the New Tax Law?

By restoring 100% bonus depreciation, the OBBBA has super-charged the cost segregation study. The impact of this taxpayer-friendly provision cannot be overstated.

If you’ve been considering a cost segregation study – wait no longer. The professionals at Boyer & Ritter are here to help you make the most of the OBBBA – and super-charge your own cost segregation study.