What is a cost segregation study, and how can it be used under The One Big Beautiful Bill Act to benefit taxpayers investing in real estate?

Author: Richard Hunt
February 23, 2026

What is a cost segregation study, and how can it be used under The One Big Beautiful Bill Act to benefit taxpayers investing in real estate?

A cost segregation study is a federal income tax planning strategy used to identify and separate the costs of various components of property acquired in a single transaction – such as the purchase or construction of a building – into distinct asset categories. The primary objective is to allocate costs among real property (generally depreciated over 27.5 or 39 years), tangible personal property (generally depreciated over 5 or 7 years), and non-depreciable land, so that assets with shorter recovery periods can be depreciated more rapidly, resulting in accelerated tax deductions and increased cash flow in the early years of ownership.

The One Big Beautiful Bill Act permanently sets bonus depreciation at 100% for qualified property acquired and placed in service after January 19, 2025. Qualified property includes MACRS property with a recovery period of 20 years or less. This means taxpayers can immediately deduct the full cost of eligible property in the year it is placed in service, rather than depreciating it over several years.

Under the One Big Beautiful Bill Act, cost segregation studies have become more attractive to investors because when a building is separated into components with depreciable lives of 20 years or less, bonus depreciation becomes available, allowing for 100% immediate expensing of such components. Electing bonus depreciation after conducting a cost segregation study is beneficial to passive real estate investors, but is particularly valuable to those investors that are treated as “real estate professionals” under IRS regulations.