You May Be Here Because…
A property decision, tax bill, or study proposal has made cost segregation relevant now.
You recently acquired a property
You completed major renovations
You heard about 100% bonus depreciation
You purchased the property years ago
You are planning a sale or 1031 exchange
A projected deduction is not the same as a usable tax benefit.
Cost segregation may accelerate depreciation into earlier years. Passive-loss rules can suspend the deduction, California may treat it differently, and a future sale can change the economic result.
Is Your Property Worth Reviewing?
The property and the owner’s tax facts both matter.
More Promising
- Material depreciable building basis after land
- Commercial, multifamily, industrial, medical, retail, hospitality, self-storage, restaurant, or qualifying rental property
- Recent acquisition or substantial improvements
- Deductions may be currently usable
- Property is expected to be held for several years
Requires Closer Review
- High W-2 income or uncertain loss usability
- Existing suspended passive losses
- Partnership, short-term rental, or material-participation questions
- High land allocation or smaller building basis
- Sale may occur within the next several years
Received a Cost Segregation Proposal?
A free estimate may show accelerated depreciation without analyzing your complete return, California adjustments, suspended losses, study economics, or exit plan.
The Study and the Tax Strategy Are Two Different Jobs
Both matter. They answer different questions.
Study Provider
- Identifies and measures building components
- Applies engineering-based classification methodology
- Documents shorter-life asset allocations
- Produces the cost segregation report
JH Group CPA
- Evaluates whether the deduction may be usable
- Models federal and California tax treatment
- Considers passive-loss, at-risk, and participation facts
- Coordinates the study with the return and exit strategy
The engineering study identifies the components. The tax strategy determines whether the study creates value.
The advisory engagement
Cost Segregation Tax Strategy Review
Our review goes beyond the report to determine whether the strategy makes sense for your property and tax situation.
Evaluate Deduction Usability
Assess whether accelerated depreciation may improve the current tax position or become suspended.
Model Federal and California Impact
Compare depreciation timing and limitations under the two systems.
Review Study Scope and Assumptions
Assess methodology, study level, basis, and relevant property facts.
Analyze Timing and Economics
Compare the expected timing benefit, study cost, and holding period.
Review Future Sale Consequences
Consider adjusted basis, depreciation recapture, and potential 1031 planning.
Provide Strategy and Next Steps
Recommend whether to proceed, adjust the scope, wait, or decline the study.
California Owners Need Two Projections
A national estimate may not show the complete California result.
Federal
- Qualifying shorter-life property may receive accelerated depreciation
- Certain qualified property acquired and placed in service after January 19, 2025 may qualify for 100% bonus depreciation
- Passive activity, at-risk, and other limitations still apply
- Future sale and recapture remain part of the analysis
California
- California does not conform to federal bonus depreciation
- Separate depreciation schedules and state adjustments may be required
- The federal deduction does not equal the California deduction
- State tax timing should be modeled over the expected holding period
Current-law summary reviewed August 2026. Eligibility depends on acquisition, placed-in-service, property, taxpayer, and election facts.
From Question to Implemented Strategy
- 1
Initial Screen
We learn about the property, ownership, timing, tax concern, and expected exit.
- 2
Engage and Review Securely
After engagement, relevant records are requested through TaxDome.
- 3
Coordinate the Study
If appropriate, we help define the study level and coordinate with the provider.
- 4
Implement the Tax Treatment
We reconcile the final study with the fixed-asset schedules and tax return.
Protect confidential information. Do not submit tax returns, closing statements, depreciation schedules, or other financial records through the public website form.
Illustrative only
A Study Estimate Is Only the Beginning
Assume a property has $1.35 million of depreciable building basis. A preliminary analysis suggests that $270,000 may qualify for shorter recovery periods.
Potential accelerated basis$270,000
Assumed federal tax rate37%
Possible federal timing benefit if fully usable$99,900
Possible current benefit if the passive loss is suspended$0
This is an illustration, not a savings estimate. It assumes the full $270,000 qualifies for immediate federal deduction and is currently usable. California does not conform to federal bonus depreciation, and a later sale may create recapture or other tax consequences.
- Potential accelerated basis
- Currently usable deduction
- Federal and California tax impact
- Study cost and future sale effect
- Decision to proceed
Free decision guide
Received a Proposal? Check These 12 Items Before You Sign.
Use the checklist to evaluate assumptions, identify questions for your CPA, and understand which issues require a closer review.
- Basis and land allocation
- Study methodology and scope
- Bonus-depreciation assumptions
- Deduction usability and exit consequences
Get the Free Checklist
Name and email are required. Phone is optional. Do not submit confidential tax or financial information.
Straight answers
Cost Segregation Frequently Asked Questions
Can cost segregation offset W-2 income?
Not automatically. Rental losses are generally passive unless an exception applies. Real estate professional status, material participation, short-term rental facts, passive income, at-risk limits, and other taxpayer-level rules may affect whether the deduction is currently usable.
Does cost segregation work for a short-term rental?
It may, but the result depends on the average rental period, services provided, personal use, material participation, ownership, and other facts. A short-term rental should not be treated as automatically nonpassive.
Can I complete a study several years after purchasing the property?
In many cases, a look-back study may be possible. Claiming catch-up depreciation commonly requires CPA review and may involve an accounting method change rather than simply changing the current depreciation schedule.
Does California allow the same bonus depreciation?
No. California does not conform to federal bonus depreciation. Separate state depreciation adjustments and ongoing federal-to-California schedules may be required.
How much does a cost segregation study cost?
Pricing depends on the property, basis, complexity, records, site work, study methodology, and provider. The relevant question is whether the expected timing benefit justifies the fee and implementation burden.
Will cost segregation increase audit risk?
No strategy is audit-proof. A defensible position depends on accurate basis, proper classification, reliable methodology, complete documentation, consistent return implementation, and support for the taxpayer-level treatment.
What happens when the property is sold?
Accelerated depreciation reduces adjusted basis and may affect gain and depreciation recapture. The exit timeline should be considered before the study is ordered, together with any potential 1031 exchange strategy.
Can JH Group CPA review a proposal I already received?
Yes. After confirming fit and scope, JH Group CPA can evaluate the proposal’s tax assumptions, expected deduction usability, California differences, study economics, and implementation requirements.
Tax-smart planning before the study
Do Not Decide Based Only on the Projected Deduction
Understand what the deduction may be, how much may be usable, what California may allow, what the study will cost, and what happens when the property is sold.
Request a Cost Segregation Review
Call 626-943-2888 or email info@jhgroupcpa.com.
Authoritative Sources
Reviewed by Jeff Huang, CPA, MBA. Last updated August 2026.
JH Group CPA, A Professional Corporation serves qualified real estate owners from offices in Alhambra and Irvine, California.
This page provides general educational information and is not tax, legal, investment, engineering, valuation, or 1031 exchange advice for a specific taxpayer or property. Tax results depend on the facts, current law, elections, documentation, and implementation.