Cost Segregation by Property Type

Each property type below has its own typical component allocation: how much basis lands in 5-year personal property, 15-year land improvements, and 27.5 or 39-year real property. Click any property type for the full breakdown plus a worked first-year tax math example.

Frequently asked questions

Which property type benefits most from cost segregation?

Short-term rentals and hotels reclassify 30% to 40% of basis into 5, 7, and 15-year property, the highest of any type, because furniture, decor, and finish-out systems dominate the build. Restaurants reclassify 30% to 40% due to kitchen equipment and specialty electrical. Self-storage reclassifies 20% to 30%. Warehouse and industrial reclassify 15% to 25%. Office and multifamily reclassify 20% to 30%.

What percentage of a residential rental gets reclassified?

Residential rental typically reclassifies 20% to 30% of depreciable basis. On a $1M basis, that is $200K to $300K moved out of the 27.5-year schedule under Section 168(c) into 5-year personal property (appliances, carpet, window treatments) and 15-year land improvements (driveways, landscaping, fencing). Under OBBBA 100% bonus depreciation, the reclassified portion deducts in year one.

Does cost segregation work on a single-family rental?

Yes, when depreciable basis exceeds $200K and the owner can use rental losses (STR loophole, REPS, or passive income to offset). A single-family rental typically reclassifies 20% to 25% of basis. On a $400K depreciable basis, that produces $80K to $100K of first-year deduction under 100% bonus. The WeCostSeg Rapid Report at $795 fits this profile.

What is the typical reclassification for a self-storage facility?

Self-storage reclassifies 20% to 30% of basis: security systems, exterior lighting, fencing, paved drives, gate systems, and climate-control units qualify for 5, 7, or 15-year recovery. The relocatable steel unit itself may qualify as personal property under the analysis in TAM 200902007. Kimble Manufacturing v. Commissioner supports the moveable-shelter classification.

Can I cost seg a warehouse or industrial building?

Yes. Warehouse and light industrial reclassifies 15% to 25% of basis. Loading docks, dock levelers, security systems, specialty lighting, epoxy floors, and process piping qualify for 5 or 15-year recovery. Racking systems are typically 7-year personal property under Section 1245. Heavy industrial with process equipment can reach 30% reclassification.

Does a hotel or STR get treated as residential for depreciation?

No. Under Section 168(e)(2)(A)(ii)(III), residential rental requires 80% or more of rent from dwelling units where the average customer stay exceeds 30 days. Hotels and short-term rentals with average stay under 30 days depreciate as 39-year nonresidential real property. The 5, 7, and 15-year reclassifications from cost seg apply on top of the 39-year base.

Which property type has the fastest payback on a cost seg study?

STRs at $500K to $2M basis. Reclassification runs 30% to 40%. Assume $1M basis, 35% reclassification, 100% bonus under OBBBA, 32% federal plus 5% state marginal rate. First-year tax savings equal $350K times 37% equals $129K. Study cost is $2,495. Payback is under two weeks of tax time. Restaurants and hotels follow a similar profile.