How a $500,000 Property Can Create $100,000+ in Immediate Tax Deductions
When you buy a rental property, you expect cash flow and appreciation. But there’s another layer that often gets overlooked: the tax savings hiding in the building itself.
That’s where cost segregation comes in — and with the One Big Beautiful Bill (OBBBA) making 100% bonus depreciation permanent, those savings are bigger and faster than ever.
What Is Cost Segregation?
Under standard rules, the IRS requires you to depreciate residential rental property over 27.5 years. That means small deductions spread out across decades.
Cost segregation is a study that separates out the parts of your property — flooring, cabinets, appliances, landscaping — that can be depreciated much faster (5, 7, or 15 years). With bonus depreciation at 100%, those shorter-life assets can be deducted in full during year one.
A $500,000 Example
Imagine purchasing a property for $500,000.
Land value (not depreciable): $100,000
Building value: $400,000
Through a cost segregation study, about 25% of the building is reclassified into shorter-lived assets.
That’s $100,000 worth of items eligible for immediate write-off.
Without Cost Segregation
Annual depreciation: $400,000 ÷ 27.5 years = $14,500/year
With Cost Segregation + 100% Bonus Depreciation
Immediate deduction: $100,000+ in year one
Remaining $300,000 depreciated over 27.5 years ≈ $10,900/year
Result: Instead of $14,500, you deduct over $110,000 in the first year.
Why It Matters in 2025
Immediate impact: A six-figure deduction can wipe out your rental income taxes and potentially offset other income (if you qualify for STR rules or real estate professional status).
Legislative boost: With OBBBA, 100% bonus depreciation is here permanently — so the benefit doesn’t phase out.
Timing matters: These studies take time. If you want 2025 deductions, September is the right moment to start.
Who Should Consider It?
Those with significant taxable income to shelter
STR and long-term landlords looking to maximize cash flow
Cost segregation isn’t just a tax tactic — it’s a cash flow strategy. By front-loading deductions, you keep more money in your pocket today, which means more capital to reinvest in your next property. That’s how portfolios scale faster.