Depreciation,
brought forward
Standard depreciation spreads a building over 27.5 years. A cost segregation study carves out components that depreciate in 5, 7, or 15 — moving deductions from someday to now.
Before you read on
- General information as of August 2026; depreciation law and bonus percentages change with legislation.
- Not tax advice — studies and their use belong with your US tax adviser.
- Recapture at sale is the other half of the story: Section 4.
Point 1The idea: a building is many assets
Tax law depreciates residential rental buildings over 27.5 years — but not everything attached to a building is 'building.' Carpets, appliances, certain electrical and plumbing serving equipment, site improvements like paving and landscaping: components like these carry 5-, 7-, or 15-year lives when properly identified.
A cost segregation study is the engineering analysis that does the identifying: qualified specialists allocate the purchase price among components with documentation the IRS recognizes. The result reclassifies often 20-35% of a property's depreciable basis into faster categories — deductions that would have trickled over decades arrive in the early years instead.
Point 2What acceleration is worth
The value is timing, not magic: total depreciation over the property's life is unchanged; the study moves it forward. Front-loaded deductions shelter rental income precisely in the expensive early years, and where bonus depreciation applies to short-life property, the first-year deduction can be dramatic.
Present value does the persuading: a deduction taken this year against this year's income beats the same deduction in 2045. For a non-resident filing a 1040-NR on net rental income, large early-year depreciation can zero the US taxable income for years — the point where the strategy earns its fee.
Point 3When a study makes sense
Timing note: studies are most natural at purchase, but look-back studies on properties owned for years can catch up missed depreciation in one adjustment — often the single best year a landlord's tax return ever has. Ask before assuming the window closed.
| Factor | Favors a study | Argues against |
|---|---|---|
| Purchase price | Larger bases amortize the fee easily | Small condos may not repay it |
| Property type | Multifamily, renovated, amenity-rich | Bare-bones units segregate little |
| Rental income | Substantial income to shelter | Little income, nothing to offset |
| Holding horizon | Long holds enjoy the deferral | Quick flips meet recapture immediately |
| Loss usability | Losses usable now or carried usefully | Passive-loss limits idle the benefit |
Studies typically cost several thousand dollars; the math is a quote against projected first-years' tax saved.
Point 4Recapture: the bill at the exit
Depreciation reduces basis, and sale gain attributable to prior depreciation is recaptured — taxed at rates up to 25% for real property components. Accelerated schedules mean more accumulated depreciation sooner, so the exit-day recapture on a short hold can claw back much of the early benefit. The strategy is a deferral engine, and deferral rewards duration.
The classic pairing is with a 1031 exchange: recapture defers along with gain when proceeds roll into the next property, letting the acceleration compound across acquisitions. Non-residents can use 1031s too, with FIRPTA coordination. Model purchase-to-exit — depreciation taken, recapture owed, exchange or not — before commissioning the study, and the strategy either proves itself in numbers or spares you the fee.
Engineering specialists allocate a property's basis among components with 5-, 7-, 15-, and 27.5-year lives, documenting faster depreciation the IRS recognizes. Commonly 20-35% of basis accelerates.
Typically several thousand dollars, scaling with property complexity. The test is the quote against the present value of tax deferred — larger properties clear it easily, small condos often do not.
Yes — non-residents electing net taxation on rental income depreciate like anyone else, and acceleration can zero US taxable rental income for years. Home-country treatment of the income differs; coordinate both filings.
Bonus percentages for short-life property have moved with legislation repeatedly. Whatever the current figure, the study is the prerequisite that identifies eligible components — check the year's rules with your adviser.
At sale, gain attributable to depreciation taken is taxed — up to 25% on real property. Acceleration increases early depreciation and thus exit recapture; long holds and 1031 exchanges are the counterweights.
Usually not: a short hold meets recapture before the deferral compounds. The strategy rewards duration or exchange-linked exits — model the full cycle first.
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Important notice
The figures on this page are general information as of August 2026 and do not represent an offer, a quote, or a guarantee of any transaction terms. Reinvent NY does not provide legal, tax, or investment advice. Confirm anything material with an attorney and a CPA before you act on it. Nothing here is a solicitation to invest, and no return is promised. Real estate brokerage services are provided through R New York.