Cost Segregation Cost vs. Benefit: What the Numbers Actually Look Like

The four numbers that make the case

Cost segregation reclassifies parts of a building, carpet, cabinetry, decorative lighting, parking lot paving, site lighting, out of the 39-year (commercial) or 27.5-year (residential rental) depreciation schedule and into 5-, 7-, or 15-year buckets. That reclassified basis becomes bonus-eligible in year one. The dollar effect depends on the building. Here are four commercial benchmark runs, not client studies, showing building basis, the first-year deduction each run produced, the fee it was set against, and the ratio between them.

Restaurants sit at the high end because kitchens carry a dense mix of 5- and 7-year equipment relative to their building size. A simple office shell sits lower, still well above the guarantee floor. First-year deductions on commercial property typically run about 16 to 21% of building basis under current bonus rules, and a study typically shifts about 15 to 35% of basis into faster schedules, varying by property type.

Why a fixed fee against a variable deduction is the whole argument

A cost segregation study is custom-priced per property. There is no flat fee and no rate card, because the engineering work scales with the building's size and complexity, not with the deduction it produces. That is the mechanic behind every ratio in the table above: the fee moves in a narrow band, the deduction moves with square footage and building type. On the benchmark runs, a $9,000 restaurant fee and a $12,000 mid-rise office fee are both small numbers next to $599,678 and $479,220.

The same logic runs even harder on short-term rentals. A delivered study on a single-family rental in Montgomery County, Pennsylvania, built 2013, 4,946 square feet, had a depreciable basis of $1,040,000. The study identified $160,242 in accelerated basis (15.4% of the total) and estimated first-year depreciation of $174,905, 16.8% of basis including 100% bonus. The fee was $1,295. That puts the ratio around 135 to 1. A residential fee is small because the engineering scope is smaller, but the mechanics producing the deduction are identical to the commercial studies above.

What moves the ratio up or down

Three variables explain most of the spread between a 24:1 benchmark run and a 67:1 benchmark run. Property type is the biggest one: a restaurant's kitchen carries dense 5- and 7-year equipment, ranges, hoods, walk-in coolers, specialized electrical and plumbing serving that equipment, that a plain office shell simply does not have. A study typically shifts about 15 to 35% of building basis into faster schedules, and where a property lands in that range is mostly a function of what is actually inside it.

Timing is the second variable. Bonus depreciation under section 168(k) is restored to 100% and made permanent for qualified property acquired after January 19, 2025, under the 2025 tax law. Property acquired between 2023 and that date sits on the older phase-down schedule, 80%, 60%, then 40%. Only the 5-, 7-, and 15-year property a study identifies is bonus-eligible; the 39-year or 27.5-year structural shell never was. A building acquired under full 100% bonus gets the entire reclassified amount in year one; a building acquired under the phase-down gets a smaller first-year slice of the same reclassification, which changes the ratio even on an identical building.

The third variable is land. Land value is always excluded first, since only the building and its improvements depreciate. A property with an unusually high land-to-building ratio, oceanfront lots being a common example, has less depreciable basis to work with in the first place, which caps the deduction regardless of how the building itself is finished.

The floor: 20x or 30x, or the study is free

Every property is different, so instead of promising a specific ratio, Basis guarantees a floor. Our study identifies at least 20 times its fee in first-year deductions on commercial property, or at least 30 times on a short-term rental, or the study is free. That guarantee sets the minimum. The four commercial examples above and the residential example all clear it by a wide margin, which is the point: the floor is conservative on purpose.

This is different from comparing the cheapest cost segregation study you can find against ours. A lower fee only helps if the deduction it produces still clears a meaningful multiple. A $2,000 software-generated report on a property that should have run an engineered study is not automatically the better deal if it misses depreciation the property actually has, or holds up worse under exam.

Getting your number before you commit

None of this requires guessing whether your property clears the floor. A free Preliminary Benefit Estimate models the likely first-year acceleration for your specific building before you pay anything. The 60-second qualifier at /qualify starts it. You see the projected number, then decide whether the fee makes sense against it, the same comparison the four rows in the table above make for you already.

Whether a given ratio changes what you owe this year is a question for your CPA, since it depends on your basis, your other income, and how the deductions interact with your return. What the estimate and the delivered study show is the number the mechanics produce for that property, using the same building basis, acquisition timing, and property type factors that separated a 24:1 benchmark run from a 67:1 benchmark run above.

Frequently asked questions

Is cost segregation worth it for a small building?

Depends on the basis and the fee together, not the building size alone. A modest single-family rental study cost $1,295 and produced an estimated $174,905 in first-year depreciation, a strong ratio on a small fee. A free estimate at /qualify models your specific numbers before you commit.

Does a bigger building always mean a bigger ratio?

Not automatically, it depends on property type. Restaurants and medical buildings tend to carry more 5- and 7-year equipment relative to size than a simple office shell, which pushes their ratio higher even at similar basis levels.

What happens if my study doesn't clear the guarantee?

Basis guarantees at least 20x the fee in first-year deductions on commercial property, or 30x on a short-term rental, or the study is free. That floor is the downside protection built into the pricing.

Why doesn't Basis just quote a flat fee?

Every study is custom-priced because the engineering scope, site review, component classification, and report depth scale with the building's size and complexity, not with a fixed menu price. A small single-family rental and a large mid-rise office simply require different amounts of work.

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