Cost segregation is an IRS-recognized tax strategy that reclassifies parts of a building into shorter depreciation lives. For residential rentals, this can shift deductions earlier compared with standard 27.5-year treatment.
The core concept
Instead of treating the entire building as one long-life asset, a study identifies components that may fall into shorter classes, commonly 5, 7, and 15 years.
Common residential classes
- 5-year property: often includes certain appliances, carpet, and removable fixtures
- 7-year property: selected specialty items depending on facts and use
- 15-year property: many land improvements such as driveways, fencing, and landscaping
- 27.5-year property: building structure and core components
Why investors and CPAs use it
Reclassification can increase early-year depreciation and improve cash flow timing. When bonus depreciation rules apply to eligible classes, first-year impact may be larger.
What makes a defensible study
- Property-specific inputs and documentation
- Clear asset classification logic
- Supportable basis allocation and schedules
- Final quality check before delivery
Next step
If you are a property owner, start with our instant estimate. If you are a CPA firm, review our white-label platform.