How the Cost Segregation Calculator Works

This is a planning tool—not an IRS-defensible study—but it's accurate enough to make confident go/no-go decisions on whether a full study makes financial sense for your property. The calculator reflects current tax law including 100% bonus depreciation (reinstated July 2025), so the savings estimates you see incorporate this significant benefit.

The 3-Step Process

Step 1: Property Data Ingestion

You enter a property address, and our AI pulls from multiple data sources:

• County assessor records → Purchase price, land value, building characteristics
• MLS/broker data → Property photos, square footage, year built
• Satellite imagery → Site improvements (parking, landscaping, etc.)
• Construction cost databases → Typical costs per sq ft for your property type

If the AI can't find accurate data (common with older properties or private transactions), you can manually input purchase price, land value, and property type. Garbage in, garbage out—the more accurate your inputs, the more reliable the estimate.

Step 2: AI Pattern Matching Against 1,000+ Study Database

This is where our proprietary $1B+ dataset becomes your competitive advantage. The AI compares your property to similar assets in our database using sophisticated matching logic:

• Property type: Matches against hundreds or thousands of completed studies in the same category (e.g., "Multifamily 6–20 units" matches against 200+ similar properties)
• Size and age: Properties built post-2000 typically have more specialty systems and higher-quality finishes. Pre-1980 construction often has less reclassifiable content.
• Location and climate: Construction methods vary significantly—slab-on-grade in Texas, full basements in Midwest, different HVAC needs in Phoenix vs. Seattle
• Quality signals: MLS descriptions, photos, and price-per-sqft help the AI estimate construction quality class (economy, standard, luxury)

Concrete example: You input a "Full Service Restaurant, $1.5M purchase, Austin TX, 4,500 sqft." The AI:

1. Pulls 87 full-service restaurant studies from the database
2. Filters to similar size (3,000–6,000 sqft) → 34 matches
3. Sees Austin construction = higher quality finishes typical → adjusts upward
4. Estimates 38% reclassification (matching the observed median for this cohort)

If actual property has unusually high or low amenities, you can manually adjust the reclassification % in the calculator output to match your property's reality.

Step 3: Depreciation Schedule Calculation

The calculator runs two parallel depreciation schedules to show the benefit:

The calculator computes the delta—the extra depreciation in years 1–10 compared to the standard method. This is where the savings come from. Apply your marginal tax rate (federal + state) to this delta, and you get your estimated tax savings.

For bonus depreciation years, the benefit is front-loaded even more dramatically. For example, with 40% bonus depreciation (2025 under current law), you could deduct 40% of the reclassified amount immediately in year one, then depreciate the remaining 60% using MACRS.

Critical Inputs That Drive Accuracy

Depreciable Basis (Purchase Price - Land Value)

You can't depreciate land per IRS rules, so accurate land value is crucial for precise estimates. If you don't know your land value, the calculator estimates it based on typical ratios from our database:

• Urban commercial properties: 20%–35% land typically
• Suburban apartments: 15%–25% land typically
• Rural properties: 10%–20% land typically
• Land-heavy (parking structures, car washes): 40%–60% land

Your county assessor or closing statement will show the actual tax-assessed allocation. If your closing statement allocated 25% to land, use that number for calculator accuracy.

Impact on savings: If you overpaid for land (waterfront premium, corner lot), your depreciable basis—and thus potential savings—shrinks. If land has minimal value (contaminated industrial site, flood zone), your building percentage and savings potential increase proportionally.

Property Type

This is the single biggest driver of accuracy. A "Restaurant (Full Service)" and a "Warehouse" might both cost $2M, but the restaurant has 2–3x more reclassifiable components due to specialty kitchen systems, millwork, and dedicated electrical/plumbing.

The calculator supports 40+ property types, each with its own historical reclassification range from our 1,000+ study database. For example:

• Quick-service restaurants: 30%–38% typical range
• Full-service restaurants: 32%–44% typical range
• Warehouse/industrial: 15%–28% typical range
• Multifamily (luxury): 30%–40% typical range

Choose the closest property type match for best accuracy. If you're unsure between two types (e.g., "Office" vs. "Medical Office"), choose the one with more specialty systems—our AI will adjust based on other property signals.

Tax Rate

The calculator shows "Tax Savings" = Extra Depreciation × Your Tax Rate. If you're in the 37% federal bracket plus 10% state, use 47%. If you pay 0% tax, your savings are $0 (even if depreciation is huge).

Calculator Accuracy & Limitations

Based on back-testing against our 1,000+ completed studies, the calculator estimates are typically within 10%–20% of final engineering study results for standard commercial properties (offices, multifamily, retail).

Accuracy is higher for common property types (apartments, single-family rentals) and lower for highly specialized properties (hospitals, manufacturing with unique process equipment).

When You Need a Full Study

If the calculator shows strong potential (typically 10x+ ROI), your next step is engaging a cost segregation firm for a full engineering analysis. This involves:

• Physical property inspection by licensed engineers
• Review of blueprints, invoices, and closing documents
• Component-by-component classification with engineering justification
• Detailed report with asset-level depreciation schedules
• Audit support if the IRS questions your filing