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A cost segregation study is essentially a way for real estate owners to front-load their property expenses by taking more (aka accelerated) depreciation than the normal amount they would take annually. That’s what “accelerated” means: you are claiming depreciation faster, just as you would accelerate in your car on a highway, because the building’s components are considered to have a shorter lifespan than the brick and mortar (structure) itself.
 

This is accomplished by informing the IRS that your building consists of different parts. You assign a value to each of those components—the guts of the building, such as electrical and plumbing, or personal property items like ceiling fans, for example. After all, a building is more than just structural elements like the foundation, brick, and lumber framing—which are also valued!

Once the reclassification and valuation are completed for an existing property purchased in prior years, this information is reported to the IRS on a tax return using Form 3115 to request a one-time retroactive adjustment for all past depreciation not previously taken on these parts of the building. The IRS reviews and then grants a large one-time depreciation deduction, which lowers your taxable income and total income taxes. And presto, pronto—it’s done, with a large tax refund on the way from the IRS and any state tax authority where the tax returns were filed.

 

One Big Beautiful Bill Act
 

President Trump signed OBBBA into law in 2025, and this is the latest iece of tax legislation to affect American taxpayers since the Tax Cuts and Job Act (TCJA) he signed into law back in 2017. The most relevant piece to OBBBA to Cost Segs is Bonus Depreciation.  The TCJA had allowed 100% bonus depreciation, but only for year 2018-2022, with it being phased out to just 60% in 2024.  OBBBA brings it back full force to 100%, for qualifying assets purchased and placed in service on or after January 19th 2025, with NO current expiration on this provision so far.

 

 

What Does This Mean for Tax Year 2025 and Going Forward?

It means that 100% bonus depreciation is back full force starting tax year 2025, and as of now, there is not expiration to being able to “expense” out qualified assets. So, as of now, businesses can confidently plan for fully expensing qualifying property.

 

 

What Should Businesses and Property Owners Do Now?

 

• Review planned purchases or property improvements to see if placing them in service in 2025 will maximize your deductions.
• Schedule a cost segregation study to reclassify eligible assets into 5-, 7-, or 15-year property, making them eligible for full expensing.
• Work with your tax advisor to create a forward-looking tax strategy that includes this and other new provisions in the Big Beautiful Bill.