If you advise business owners or real estate investors, expect the question to come early and often in 2026:
“Now that bonus depreciation changed again, should we do a cost segregation study?”
For CPAs, this is not a gimmick question. It is a high-impact planning decision that affects taxable income, cash flow, and how quickly clients can recover capital. The opportunity is real, but the “best” answer depends on a factor that gets overlooked: can the client actually use the deduction this year?
This article lays out a CPA-friendly framework—what changed, why cost segregation matters more now, how to explain the three bonus approaches to clients, and who can use the resulting deductions immediately versus who may end up with suspended losses.
What changed under OBBBA (and why depreciation planning is back on the front page)
OBBBA shifted bonus depreciation in a way that brings accelerated depreciation planning back into the core toolkit. When bonus is generous, cost segregation becomes far more powerful because it can reclassify part of a building’s basis into shorter-life categories where acceleration is available.
The practical result: a cost segregation study can turn a portion of what would otherwise be slow, long-term depreciation into meaningful year-one deductions. That doesn’t mean “always take the biggest deduction.” It means CPAs now have a wider range of defensible strategies to match the client’s tax situation.
The three bonus approaches clients effectively have this year
Most clients will fall into one of three strategies, and CPAs should be prepared to explain the trade-offs in plain language:
Elect out of bonus depreciation
This is the “keep depreciation steady” approach. It can be the right move when the client cannot use a large year-one deduction or when accelerating deductions creates downstream inefficiencies. Common examples include passive loss limitations, insufficient taxable income, timing issues, or a deliberate decision to preserve deductions for future years.
Use 40% bonus depreciation
This is the “controlled acceleration” approach. It provides real first-year benefit while avoiding an oversized deduction that may be trapped or wasted. For many taxpayers, this is the most practical middle ground—especially when current-year tax capacity is limited.
Use 100% bonus depreciation
This is the “maximize year-one” approach. It is often optimal when the taxpayer has sufficient taxable income and the deduction will actually reduce current-year liability instead of becoming a deferred benefit.
The point CPAs should emphasize: bonus depreciation is not just a number—it’s a planning lever.
Why cost segregation is the multiplier (and what it really does)
Without a cost segregation study, commercial building depreciation is typically spread over a long recovery period, producing modest annual depreciation. A cost segregation study identifies and substantiates building components that belong in shorter-life categories.
In practical terms, it often breaks the building into buckets like:
- long-life building shell
- land improvements
- personal property components
When bonus depreciation is available, those shorter-life buckets can produce large year-one deductions. That is why cost segregation is not just a depreciation exercise—it is a timing strategy with potentially meaningful current-year tax impact.
The Year 1 comparison CPAs can show clients (placed in service 1/25/25)
The best way to communicate the value is to show a side-by-side Year 1 depreciation comparison:
- a building with no cost segregation (everything treated as long-life), versus
- a building with cost segregation and the three bonus approaches.
Example assumptions
- Purchase price: $1,000,000
- Land allocation: 20% → $200,000 (non-depreciable)
- Depreciable building basis: $800,000
- Placed in service: January 25, 2025
- No cost segregation: entire $800,000 depreciated as long-life building property
- Cost segregation allocation of depreciable basis:
- 58% long-life building property
- 20% 15-year property
- 22% 5-year property
Basis allocation with cost segregation
- Long-life portion: 58% × $800,000 = $464,000
- 15-year portion: 20% × $800,000 = $160,000
- 5-year portion: 22% × $800,000 = $176,000
Bonus-eligible basis in this example is the 5-year and 15-year buckets:
- $160,000 + $176,000 = $336,000
What “no cost segregation” looks like in Year 1
Without a study, Year 1 depreciation is relatively small because the entire building basis is recovered slowly. For a January placed-in-service date, Year 1 depreciation on $800,000 of long-life building basis is typically around $19,658 in a simplified planning illustration.
This is the baseline that makes the cost segregation difference easy to see.
Year 1 depreciation table with estimated federal liability reduction
The table below shows:
- Year 1 depreciation
- The incremental deduction vs. no study
- The estimated federal liability reduction using the highest marginal federal rate of 37%
| Scenario | Year 1 depreciation (total) | Incremental deduction vs. no cost seg | Estimated federal liability reduction at 37% |
|---|---|---|---|
| No cost segregation (long-life only) | $19,658 | — | $7,273 |
| Cost segregation, bonus elected out (0%) | $54,602 | $34,944 | $12,930 |
| Cost segregation with 40% bonus | $171,722 | $152,064 | $56,264 |
| Cost segregation with 100% bonus | $347,402 | $327,744 | $121,265 |
How to read this as a CPA:
- The first row is the “no study” baseline.
- The incremental column shows what the study and election choice added in Year 1.
- The final column translates the incremental deduction into a rough federal liability impact at the top bracket.
Important CPA caveat to keep the article honest:
These are planning-level numbers. Actual return depreciation will depend on the exact asset mix, placed-in-service timing, conventions, entity-level limitations, and state conformity.
The most important CPA question: will the deduction be usable this year?
Cost segregation produces depreciation deductions. The client only gets real cash-tax benefit if the deductions can reduce taxable income in the current year. For many taxpayers, the limiting factor is not depreciation—it is the passive activity rules.
This is why CPAs should always frame cost segregation as a two-part analysis:
- How big is the deduction?
- Can the client use it now?
Self-rental structures: common, valuable, and often misunderstood
Self-rental structures are common in closely held businesses where the operating company rents the facility from a related real estate entity. CPAs see this constantly in industries such as:
- medical and dental practices
- restoration and remediation contractors
- construction and specialty trades
- manufacturing and light industrial operators
- auto services and equipment-based businesses
- professional firms that own their office building
This structure can be excellent for liability management and operational clarity. But for depreciation planning, it creates a key issue: accelerated depreciation often arises in the rental entity, and rental activity is frequently subject to passive loss limitations.
That is where grouping analysis becomes critical. If the rental activity can be appropriately grouped with the operating activity, the taxpayer may be able to align the depreciation deductions with income that would otherwise be out of reach. If grouping is not available or the facts do not support it, depreciation losses may suspend and become a deferred benefit.
This is one of the areas where CPAs add real value: explaining that the benefit is not always “lost,” but the timing may change dramatically depending on how the activity is treated.
Offsetting gains: why suspended depreciation losses can still be valuable
Even when depreciation losses suspend, they are not necessarily wasted. Passive losses can often be used in future years against:
- passive income from other activities, or
- gain events tied to the activity
In practice, many cost segregation studies still produce strong long-term outcomes even when the client cannot use 100% of the benefit immediately. The strategy shifts from “immediate tax savings” to “timing and disposition planning.”
Real estate professional: the two requirements and the nonpassive tests CPAs must apply
For real estate owners, real estate professional status can be the difference between a deduction that reduces tax now and a deduction that sits on the shelf.
The two requirements to qualify as a real estate professional
Both must be met for the tax year:
- The taxpayer must perform more than 750 hours of services in real property trades or businesses during the year in which they materially participate.
- More than 50% of the taxpayer’s total personal service time during the year must be performed in real property trades or businesses in which they materially participate.
The nonpassive requirement: material participation still matters
Even after qualifying as a real estate professional, the taxpayer must also establish material participation in the rental activity for the losses to be treated as nonpassive.
CPAs typically evaluate material participation using established participation tests. Commonly applied tests include:
- participation of more than 500 hours in the activity during the year
- the taxpayer’s participation constitutes substantially all participation in the activity
- participation of more than 100 hours with no other individual participating more
A practical planning lever for taxpayers with multiple properties is whether the rental activities can be treated as one combined activity for participation purposes. That choice can determine whether material participation is met.
The CPA takeaway is straightforward: real estate professional planning is not just “hit 750 hours.” It is a two-layer analysis:
- qualify as a real estate professional, and
- prove material participation to convert the rental loss into a usable, nonpassive deduction.
Choosing between 0%, 40%, and 100% bonus: a CPA decision framework
To keep the client conversation grounded, here is a practical way CPAs can frame the election decision:
Elect out of bonus when
- the client cannot use the loss now and there is no clear short-term plan to absorb it
- accelerating deductions creates inefficiency in the broader return posture
- the goal is to preserve deductions for future years
Use 40% bonus when
- the client wants acceleration but needs control
- a full bonus approach would create a large suspended loss bucket
- smoothing income and deductions provides a better long-term result
Use 100% bonus when
- there is sufficient taxable income
- activity classification supports current-year usage
- maximizing year-one cash-tax benefit aligns with the client’s planning goals
What CPAs should remember in 2025
OBBBA has made depreciation planning a front-line conversation again. Cost segregation can deliver substantial year-one deductions, but the election choice and activity classification determine whether the deduction becomes immediate tax savings or a deferred benefit.
For CPAs, the value is not only the computation. The value is guiding the client to the right strategy:
- choosing the right bonus approach,
- aligning the depreciation outcome with usability, and
- supporting the position with practical documentation and defensible reporting.
When those pieces align, cost segregation becomes one of the cleanest ways to reduce taxable income and improve cash flow—right when clients care most.
Find out more about Cost Segregation here: https://corporatetaxadvisors.com/services/cost-segregation/
