How they interact
A cost segregation study identifies components of a building that qualify as 5-, 7-, or 15-year MACRS property. Bonus depreciation is then applied to those components in year one, allowing you to deduct a large percentage immediately rather than spreading the cost over years. The building's 27.5- or 39-year structural portion is ineligible for bonus — only the shorter-life components a cost seg study unlocks qualify.
A worked example
Suppose a $900,000 commercial building with a cost seg study identifies 25% as shorter-life property ($225,000). With a 40% bonus depreciation rate, you could deduct $90,000 in bonus depreciation in year one on those components, plus accelerated MACRS on the remainder. Without cost seg, the entire $900,000 would spread over 39 years with no bonus available — about $23,077/year.
Declining bonus rates change the math
Bonus depreciation phases down annually. At 100%, cost seg could create a near-complete immediate write-off of qualifying components; at lower rates, the first-year benefit shrinks. Acting earlier in the phase-down schedule captures more of the benefit. Confirm the current-year rate before structuring a purchase.
Frequently asked questions
Does the entire building qualify for bonus depreciation?
No — only the shorter-life components a cost seg study identifies. The building's 27.5- or 39-year structure must use straight-line MACRS with no bonus.
How does a declining bonus rate affect cost seg value?
A lower bonus rate reduces the first-year deduction but doesn't eliminate the value of a faster MACRS schedule on the reclassified components.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.