Cost Segregation in Pennsylvania

If you own income-producing property in Pennsylvania and you are depreciating the entire building over 39 years, you are almost certainly leaving deductions on the table. A cost segregation study moves the parts of your building that legally belong in shorter lives out of that 39-year bucket, and under current law most of that moves into year one.

What a study actually does

A building is not one asset. The tax code treats it as one by default, but an engineer looking at the same building sees dozens of components with different useful lives. Carpet and removable flooring, decorative lighting, cabinets and millwork, appliances, and the electrical and plumbing that serves specific equipment belong in a 5-year life. Furniture and certain fixtures belong in 7. Land improvements, meaning parking lots, sidewalks, landscaping, fencing and site lighting, belong in 15. The structural shell and the general building systems stay at 39.

Our study documents that split with engineering support so it holds up. It is not aggressive tax planning and it is not a loophole. Component depreciation has been settled since the IRS lost Hospital Corporation of America v. Commissioner in 1997, and the IRS publishes an Audit Techniques Guide describing precisely how these studies are supposed to be performed.

Why the timing matters right now

The One Big Beautiful Bill Act, signed in July 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Bonus depreciation applies to property with a recovery period of 20 years or less. That is exactly the 5, 7 and 15-year buckets our study creates. The 39-year shell receives none of it. Without a study there is nothing for the bonus rate to apply to, which is the whole argument for running one now.

What the numbers actually look like

Most firms in this industry quote 30% or 40% of basis. Here is what four real engineered studies produced:

First-year deductions came in between 16.1% and 21.4% of building basis. We model against that band rather than the industry's marketing numbers, because we guarantee a minimum return against the estimate we give you, so an inflated estimate is a problem we would own rather than a sale we would win.

Pennsylvania counties we cover

We do not treat Pennsylvania as one market. Land is a very different share of total value in Center City than it is in Upper Bucks, and that share determines how much of your purchase price is even eligible for reclassification. We track submarket-level rent, capitalization rate and vacancy indicators for each county we work, and we use them to check the building-to-land split on your parcel before we model anything.

A note specific to Pennsylvania

Pennsylvania state treatment of depreciation does not always mirror the federal rules, so the state effect of a study is not automatically identical to the federal effect. The federal benefit is where nearly all of the value sits, and this is not a reason to skip a study. It is a reason to plan one properly and to have your CPA confirm the Pennsylvania treatment before filing.

First, can you actually use the deduction this year?

This is the question most firms skip, and skipping it is how owners end up paying for a study that does nothing for them in the current year. A cost segregation study creates a large paper loss. Whether that loss offsets your other income this year depends on you, not on your building.

You can generally use it against active income now if you materially participate in a short-term rental (average guest stay of seven days or less, and you run it yourself rather than handing it to a property manager), if you hold Real Estate Professional status, or if you have passive income to offset. If you own a long-term rental, use a property manager, and have no passive income, the loss is still real but it suspends and releases later, usually on sale. That is a deferral, not a first-year win.

We screen for this before we quote. If your answer is the suspended case, we will tell you, and we will tell you why waiting may serve you better.

Why owners pick Basis

Every other cost segregation firm produces one kind of study, which means every other firm recommends the kind of study it produces. Basis does not produce studies. We source them, which is the only reason we can put both versions of the work in front of you and tell you honestly which one your building actually needs.

• Two real tiers, one honest tradeoff. An engineered study built by our engineering team with full audit representation and errors and omissions coverage, or a faster software-driven study at a lower fee with a thinner engineering paper trail. We recommend engineered by default and we tell you exactly what you give up if you do not take it.
• A minimum ROI, in writing, or it is free. Our study identifies at least 20x its fee in first-year deductions on commercial property, or at least 30x on a short-term rental, or you do not pay for it.
• Your number before you pay anything. Property-specific, modeled from real parcel data, not a slider on a calculator.
• We will tell you no. If you cannot use the deduction this year we say so before we quote you, not after you have paid.

Read the full comparison, including where the big national firms beat us »

Frequently asked questions

Does cost segregation work in Pennsylvania?

Yes. Cost segregation accelerates depreciation under Section 168 of the Internal Revenue Code, which is federal law, so a Pennsylvania property is treated exactly like a property in any other state. What is local is the property data, the submarket, and who you work with.

Does Pennsylvania follow federal bonus depreciation?

Not automatically. Pennsylvania state treatment of depreciation can differ from the federal rules, so the effect on your state return is not necessarily the same as the effect on your federal return. The federal benefit is the headline and it is where nearly all of the value sits, but your CPA should confirm the Pennsylvania treatment before you file.

What does a cost segregation study cost in Pennsylvania?

Our pricing is published rather than hidden behind a sales call. Short-term and residential rental studies run from $1,200 on the software tier, and engineered studies start at $5,200 once a property clears about $1 million of basis. Commercial runs $6,000 software and $12,000 engineered between $1.5 and $3 million, scaling above that. Medical, restaurant, hospitality and other specialty property is engineered only. Every quote is then capped by the guarantee: our fee can never exceed one twentieth of your estimated first-year deductions on commercial, or one thirtieth on a short-term rental, and you see your estimate before you commit.

How much does a study typically free up?

On four real engineered commercial studies, first-year deductions ran between 16.1% and 21.4% of building basis. Short-term rentals often run higher as a multiple of the fee because the fee is much smaller. These are deductions, not cash. Cash depends on your marginal rate.

What if I bought the building several years ago?

You can still act. A Form 3115 change in accounting method lets you claim the depreciation you should have taken in prior years as a single catch-up deduction this year, without amending your earlier returns.

Who actually performs the study?

Basis is an advisory and brokerage. That is deliberate. Our engineering team is a partner firm rather than an in-house production line, which is exactly why we can recommend the tier your building needs instead of the only tier we sell. The engineered tier carries full audit representation and errors and omissions coverage. The lower-cost tier is software-driven, faster, and carries a thinner engineering paper trail, and we tell you that plainly rather than selling it as equivalent.

Sources

» Internal Revenue Code Section 168(k), additional first-year depreciation
» IRS Cost Segregation Audit Techniques Guide (Publication 5653)
» IRS Publication 946, How To Depreciate Property
» Treasury Regulation §1.168(i)-8
» IRS Form 3115, Application for Change in Accounting Method
» Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)
» Submarket rent, capitalization rate, and vacancy figures compiled by the Basis property data engine from CBRE, Cushman & Wakefield, Newmark, and Colliers market reports. See Sources & Citations.