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What a $1M Rental Really Looks Like on Your Taxes — With and Without a Study
Numbers make this real. Here's a clean, fully worked example of how cost segregation changes the first-year picture on a property — laid out step by step, with every figure labeled illustrative.
5 min read
Nischay Rawal, CPA, EA
Managing Partner, NR CPAs & Business Advisors
6 min read
eople can read about cost segregation all day and still not feel it. So let's do the thing that actually lands: run the numbers on a property, side by side, with and without a study.
A note before we start, because honesty is the whole point: every figure below is illustrative . Your property will be different — different components, different basis, different tax situation. This is to show you the shape of the math, not to promise a number. Your real number comes from running your actual property.
The setup
Take a short-term rental placed in service this year, with a depreciable basis of $1,000,000 (that's the building and its components — land itself is never depreciable, per IRS Publication 946).
Without a study: the trickle
By default, the whole $1,000,000 is depreciated straight-line over the building's long schedule — 27.5 years for residential rental, 39 for commercial (IRS Publication 946). On a residential-rental schedule, that's roughly $36,000 in the first year. On a commercial 39-year schedule, closer to $25,000. Either way: a thin, steady slice, the same every year for decades.
With a study: the components move
A cost segregation study breaks the property into its real components and reclassifies the ones that legally qualify onto shorter schedules. Studies commonly identify somewhere in the range of 20%–40% of a property's basis as short-life property (the exact figure depends entirely on the building). Here's an illustrative breakdown on our $1,000,000 property, with ~30% reclassified:
Illustrative allocation only; actual classification is determined by an engineering study. Recovery periods per IRS Publication 946 & 527; bonus eligibility for short-life components per IRS Notice 2026-11.
Putting it together: first-year deduction
The three short-life categories above total $250,000 — and because the 2025 law restored permanent 100% bonus depreciation for qualifying property placed in service after January 19, 2025, that entire $250,000 can be deducted in year one. The remaining $750,000 building keeps depreciating on its normal schedule.
Illustrative only.
What could this be worth on your property?
Our free calculator gives you an illustrative first-year deduction and tax-savings range for your property — property type, purchase price, and tax bracket, in under a minute.
or call +1 954-231-6613
Results are illustrative ranges for educational purposes only — not a definitive figure, quote, or tax advice. Whether a deduction is usable depends on your situation (real-estate-professional status, short-term-rental material participation, or available passive income). NR confirms eligibility before any engagement.
What that's worth in cash
Depreciation is a deduction, not a refund — so the cash value depends on your tax bracket. On roughly $250,000 of additional first-year deduction, an investor in a high bracket (say 35%–37%) could keep somewhere in the neighborhood of $85,000–$95,000 that would otherwise have gone to taxes this year — against a study fee that’s typically a small fraction of that.
That's the difference between a $25,000 trickle and a six-figure first-year deduction. Same property. Same law. The only variable is whether anyone ran the components.
The honest part (this matters)
Two things determine whether that math actually works for you:
Can you use the deduction this year? A $250,000 deduction only helps if you can apply it against income. That can depend on whether you qualify as a real estate professional, whether you materially participate in a short-term rental (which can make the losses nonpassive without professional status), or whether you have passive income to offset (IRS Publication 925). If you can’t use it all this year, the unused portion generally carries forward — but the timing value changes.
Does it clearly beat the fee? For a property this size, it usually does by a wide margin. For a smaller property, the math is closer — and if it doesn't clearly beat the fee for yours, we'll tell you.
Want your real number instead of an illustration?
The example above is the shape. Your number is specific to your property and your situation — and we'll run it for free.
Trusted by clients across multiple industries. Licensed CPAs and Enrolled Agents, Miamibased, serving clients nationwide.
Get your free Cost Segregation Savings Estimate
A few questions, a short call, and a real dollar figure for what a studycould be worth on your property — before you commit to anything.
or call +1 954-231-6613
IRS — Treasury, IRS issue guidance on the additional first year depreciation deduction (Notice 2026-11)— irs.gov
IRS — Cost Segregation Audit Techniques Guide (Publication 5653) — irs.gov/pub/irs-pdf/p5653.pdf
IRS — Publication 946, How To Depreciate Property — irs.gov/publications/p946
IRS — Publication 527, Residential Rental Property — irs.gov/publications/p527
All figures are illustrative and for educational purposes only and are not a prediction of results for any specific property. Cost segregation accelerates the timing of depreciation deductions; it is not a tax credit and does not create a permanent reduction. Usability depends on individual circumstances including participation status and available income to offset. Not tax, legal, or accounting advice. Consult a qualified professional.
