The basic ROI calculation
Cost segregation ROI compares the net present value of accelerated tax savings against the cost of the study. The rough estimate: multiply the reclassifiable portion of the depreciable basis (often 20–35% for residential, 25–40% for commercial) by the bonus depreciation percentage and your effective marginal tax rate to get the approximate first-year tax savings. Then subtract the study fee to see the net gain in year one.
Example: $800,000 depreciable basis, 30% reclassification = $240,000 in accelerated assets. Apply 40% bonus (2025 rate): $96,000 first-year deduction. At a 32% marginal rate: $30,720 tax savings in year one. If the study cost $8,000, ROI is ($30,720 − $8,000) ÷ $8,000 = 284%. Even on a conservative basis this often pays.
The time-value factor
The full ROI story includes what you do with the money saved. A $30,000 check you don't write to the IRS this year — and can invest in the next property — compounds forward. Even if recapture eventually brings some of it back, you had years of use of that capital. The larger the property and the higher your marginal tax rate, the more powerful the time-value argument becomes.
When ROI is negative
Studies rarely pay on lower-value properties. A study that costs $5,000 on a $100,000 building (only $90,000 depreciable) might reclassify $25,000 at 40% bonus and 24% tax rate = $2,400 in savings — a loss before factoring in paperwork. Rule of thumb: consider studies on properties with at least $500,000 of building value, and use the cost segregation calculator to estimate your specific savings before engaging an engineer.
Frequently asked questions
How do I calculate cost segregation ROI?
Estimate first-year tax savings (reclassified basis × bonus rate × marginal rate), subtract the study fee, and divide by the fee. At meaningful property values and marginal rates above 24%, ROI is often 3–10x the study cost in year one alone.
What property size justifies a cost segregation study?
As a general rule, properties with $500,000 or more in depreciable building value are typically worth the study. Below that, the savings often don't exceed the cost.
Does the bonus depreciation phase-down affect ROI?
Yes. As bonus rates step down (40% in 2025, 20% in 2026), first-year savings shrink. Timing a purchase and study for a higher bonus year improves ROI meaningfully.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.