Table of Contents
24 chapters and 3 appendices covering everything you need to know about cost segregation
What Is Depreciation?
Depreciation allows property owners to deduct the cost of their investment over time. This chapter covers the basics of how the IRS views property wear and tear, the difference between land and improvements, and why depreciation is the foundation of real estate tax strategy.
Chapter 2Standard Depreciation Schedules
The IRS assigns 27.5 years for residential rental property and 39 years for nonresidential property. Learn how these timelines work, what qualifies for each category, and why straight-line depreciation leaves significant tax savings on the table.
Chapter 3Introduction to Cost Segregation
Cost segregation is an engineering-based tax strategy that reclassifies building components into shorter depreciation categories. This chapter explains the concept, its history, and why the IRS developed specific guidelines for these studies.
Chapter 4The Engineering Study Process
A qualified cost segregation study involves a detailed engineering analysis of every building component. Learn what engineers look for, how they categorize assets, and what documentation a proper study includes.
Chapter 55-Year, 7-Year, and 15-Year Property Classes
Not all building components depreciate at the same rate. Discover which items qualify for 5-year, 7-year, and 15-year MACRS recovery periods and how reclassifying them generates substantial upfront deductions.
Chapter 6Bonus Depreciation Explained
Bonus depreciation allows investors to deduct a large percentage of reclassified assets in the first year. This chapter covers the current 100% bonus depreciation rules under the OBBBA, phase-down schedules, and how bonus depreciation multiplies the impact of cost segregation.
Chapter 7Section 179 and Cost Segregation
Section 179 provides another path to accelerated deductions. Learn how it differs from bonus depreciation, when to use each strategy, and how they interact with cost segregation studies.
Chapter 8Short-Term Rental Strategies
Short-term rentals classified under IRC Sec. 168(e)(2)(B) use the 39-year nonresidential recovery period. This chapter covers the unique tax advantages for STR owners, the 7-day rule, material participation, and how cost segregation can generate losses that offset W-2 income.
Chapter 9Long-Term Rental Strategies
Long-term rentals follow the standard 27.5-year residential schedule. Learn how cost segregation applies to buy-and-hold investors, passive activity rules under IRC Sec. 469, and strategies for maximizing deductions while managing passive loss limitations.
Chapter 10Commercial Property Strategies
Office buildings, retail centers, and industrial properties each have unique cost segregation opportunities. This chapter covers commercial-specific components, tenant improvements, and strategies for maximizing reclassification on commercial assets.
Chapter 11Self-Storage Facility Strategies
Self-storage facilities have some of the highest reclassification rates in real estate. Learn why these properties are ideal candidates for cost segregation and how owners can typically reclassify 35-45% of the purchase price.
Chapter 12Calculating Your Potential Savings
Walk through the math of a cost segregation study step by step. This chapter includes worksheets, formulas, and real examples showing how to estimate your potential tax savings before commissioning a study.
Chapter 13Lookback Studies for Existing Properties
You do not need to have just purchased a property to benefit from cost segregation. Learn how lookback studies (also called catch-up depreciation under IRC Sec. 481(a)) allow you to claim missed deductions on properties you have owned for years.
Chapter 14The Role of IRC Section 1245 and 1250
Understanding the difference between Section 1245 and Section 1250 property is critical for cost segregation. This chapter explains recapture rules, how they affect your tax position at sale, and strategies for managing recapture risk.
Chapter 15Partial Asset Dispositions
When you renovate or replace building components, you may be able to write off the remaining value of the old components. Learn how partial asset disposition rules under Treas. Reg. 1.168(i)-8 work alongside cost segregation.
Chapter 16Qualified Improvement Property (QIP)
QIP has its own depreciation rules and interacts with cost segregation studies. This chapter covers what qualifies as QIP, the 15-year recovery period, and how it fits into your overall tax strategy.
Chapter 17Cost Segregation and 1031 Exchanges
If you plan to sell and reinvest through a 1031 exchange, cost segregation has important implications. Learn how depreciation recapture affects exchange calculations and when to time your study relative to a sale.
Chapter 18Passive Activity Rules and Material Participation
The IRS limits passive losses under IRC Sec. 469 unless you qualify as a real estate professional or meet material participation tests. This chapter explains how these rules interact with cost segregation deductions.
Chapter 19Real Estate Professional Status
Qualifying as a real estate professional (REPS) under IRC Sec. 469(c)(7) unlocks the ability to use cost segregation losses against all income types. Learn the hour requirements, documentation standards, and common audit triggers.
Chapter 20IRS Audit Guide for Cost Segregation
The IRS published a Cost Segregation Audit Techniques Guide (ATG) that outlines exactly what they look for. This chapter summarizes the ATG, common audit triggers, and how to ensure your study withstands IRS scrutiny.
Chapter 21Choosing a Cost Segregation Provider
Not all cost segregation firms are equal. Learn the qualifications to look for, questions to ask potential providers, red flags that indicate a substandard study, and why engineering-based studies outperform estimate-based approaches.
Chapter 22The Economics of a Cost Segregation Study
Is a cost segregation study worth the investment? This chapter breaks down typical study costs, expected returns, break-even analysis, and minimum property values where a study makes financial sense.
Chapter 23Case Studies and Real-World Examples
Review detailed case studies showing how different property types and investor profiles benefited from cost segregation. Includes short-term rentals, apartment buildings, medical offices, restaurants, and self-storage facilities.
Chapter 24Implementation Checklist
A step-by-step checklist for implementing cost segregation on your next property. Covers timing, documentation, coordination with your CPA, and how to integrate the study results into your tax filing.
Appendix AGlossary of Cost Segregation Terms
Comprehensive glossary covering all technical terms, IRS references, and acronyms used throughout the book.
Appendix BIRS Revenue Procedures and Rulings
A curated list of relevant IRS revenue procedures, revenue rulings, and Treasury regulations that support cost segregation studies.
Appendix CSample Cost Segregation Report
An annotated sample report showing what a professional cost segregation study looks like, with explanations of each section.
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Cost Segregation Study Guide is an educational resource. For an analysis of your own business or property, review AE Tax Advisors’ relevant advisory services and book a discovery call.
General education, not individual tax advice. Examples do not establish eligibility or guarantee savings.