Learn how a cost segregation study can accelerate depreciation, reduce taxable income, and improve cash flow for property owners in 2026 and beyond.
For commercial or residential property owners, cost segregation remains one of the most effective real estate tax planning strategies available in 2026 and beyond. A cost segregation study identifies building components that can be depreciated for IRS tax filing purposes over shorter class lives, such as 5, 7, or 15 years instead of the standard 27.5 or 39 years. This allows owners to accelerate depreciation, improve cash flow, and reduce taxable income. The IRS recognizes that certain building components may qualify for shorter recovery periods if properly identified and documented, as outlined in IRS depreciation guidance, including Publication 946. IRS Publication 946: How To Depreciate Property and in the IRS Cost Segregation Audit Techniques Guide.
Cost segregation isn't just for newly constructed or purchased buildings. Owners who have renovated or expanded their properties may also qualify for significant tax savings. Office buildings, apartment complexes, warehouses, medical facilities, manufacturing plants, hotels, retail centers, fast food restaurants, and self-storage facilities are all strong candidates for an engineered study. Even if a property was acquired years ago, there often are opportunities to capture additional depreciation through an IRS accounting method change using IRS Form 3115. Cost segregation combined with the Tangible Property Regulations (TPR) to remove capitalized work efforts that did not meet the TPR capitalization criteria often allows taxpayers to enjoy up missed depreciation without amending prior year returns. IRS Instructions for Form 3115 IRS Tangible Property Final Regulations
As tax regulations continue to evolve, proactive planning has become more important than ever. Building owners should evaluate cost segregation and the TPRs as part of their mid-year annual tax strategy rather than waiting until year end. A properly prepared study can also work alongside other tax planning opportunities, including Partial Asset Dispositions (PAD), the TPRs, Recapture Reduction, via accounting method changes to help maximize available deductions while maintaining compliance with IRS regulations. Understanding these rules before beginning renovations or disposing of building components can make a significant difference in the deductions available.
At TPTM, Eric Wallace, CPA, and his team work closely with building owners, investors, CPA Firms, and tax professionals to identify opportunities that are often overlooked. Every cost segregation study is prepared by one of our engineers, reviewed for tax accuracy by an experienced construction and real estate CPA, to ensure clients receive the maximum tax benefit available while compliant with IRS rules. Rather than looking only at depreciation, the team also evaluates whether additional opportunities, such as PADs or other
accounting method changes, could further increase tax savings or compliance. This comprehensive approach helps clients maximize available deductions while providing the documentation needed to support their tax position.
Is Your Property a Good Candidate for Cost Segregation?
If you answer "Yes" to one or more of the questions below, why not schedule a complimentary evaluation with us at TPTM:
Have you purchased a commercial or residential rental property within the last 20 years?
Was your purchase price approximately $500,000 or more?
Have you recently completed renovations or tenant improvements?
Have you added numerous capitalized work efforts to your depreciation schedule over the past tax years (not limited to HVAC units, tenant improvements, roof efforts, electrical work, apartment work, parking lot repairs, etc.?
Do you own any real estate employed in a trade or business?
Are you planning significant renovations or expansions?
Have you never had a cost segregation study performed on the property?
Would improving cash flow through accelerated depreciation benefit your business?
Are you looking for additional tax savings before year end?
If you checked any of these points, a cost segregation study or one combined with a TPR study may provide meaningful tax savings. The TPTM team can review your property, explain your options, provide a range of potential tax deductions, and help determine whether our professional expertise is the right fit for your property and long term tax strategy.