A rough planning estimate for a building: typical reclassification into 5-, 7-, and 15-year property, first-year depreciation under current bonus rules, federal and California tax savings, the NPV of the deferral, a §481(a) look-back for buildings you already own, and a check on whether a study is likely worth the fee. It is not an engineering study and not tax advice. For how LaviCPA handles studies, see the cost segregation page.
Planning estimate only
These figures are rules of thumb for conversation and scoping, not the results of an engineering-based cost segregation study and not tax advice. A real study inspects the building. Do not use these numbers on a return or treat them as a promised result.
Land is not depreciable. The Los Angeles County assessor land-to-improvement ratio on the property tax bill is a common starting point; it is not always the right tax basis split. Defaults are a $2,000,000 multifamily building, 20% land, placed in service January 2026.
Typical industry range for multifamily / apartment is about 20–30% of depreciable basis, combined five-, seven-, and fifteen-year property. These midpoints are rough rules of thumb, not the result of a study. Change any percentage. Residual basis stays with the building.
Baseline studies often land around 22% of depreciable basis (about 16% five-year and 6–8% fifteen-year). Amenities such as a clubhouse, pool, or structured parking can approach about 30%.
Depreciable basis
$1,600,000
$400,000 land (20%)
Reclassified
24%
typical 20–30%
Extra federal deduction
$370,618
January 2026 first year
Estimated first-year tax savings
$142,567
Federal plus California
OBBBA restored 100% additional first-year depreciation for qualified property acquired and placed in service after January 19, 2025 (IRC §168(k); IRS Topic 704 and Notice 2026-11).
Same-year study: no Form 3115 §481(a) catch-up. First-year depreciation is for the year placed in service.
Percentages apply to depreciable basis (purchase price minus land), not to the full price.
| Class | % of basis | Amount |
|---|---|---|
| Land (nondepreciable) | 20% of price | $400,000 |
| 5-year personal property | 16% | $256,000 |
| 7-year personal property | 0% | $0 |
| 15-year land improvements | 8% | $128,000 |
| Building (27.5-year) | 76% | $1,216,000 |
| Depreciable basis | 100% | $1,600,000 |
| Purchase price | $2,000,000 |
Year placed in service, January 2026, mid-month convention on the building and half-year convention on 5-, 7-, and 15-year property.
| Without cost seg | With cost seg | Incremental | |
|---|---|---|---|
| Federal depreciation | $55,760 | $426,378 | $370,618 |
| Estimated federal tax | $20,631 | $157,760 | $137,129 |
| California depreciation (no bonus) | $55,760 | $99,978 | $44,218 |
| Estimated California tax | $6,858 | $12,297 | $5,439 |
| Estimated tax savings | $142,567 |
Federal tax uses a 37% marginal rate. California uses a 12.3% marginal rate on regular MACRS, with no bonus, because California does not conform to IRC §168(k). SALT deductibility is not modeled. Savings are cash only if the losses can be used in that year.
NPV of the deferral
$91,863
Discounted at 7%
Undiscounted lifetime tax difference
$0
Near zero at constant rates
Cost segregation changes timing, not the total depreciation over the building's life, so the undiscounted tax difference should be near zero at constant rates. The NPV is the time value of taking deductions sooner, discounted at 7%, with the study year undiscounted and later years discounted annually. It assumes the property is held for the full recovery period at these same tax rates, and it ignores sale recapture, refinancing, and a change in rates.
Federal depreciation. Study-year figures include any §481(a) catch-up.
| Year | Fed without | Fed with | Fed extra | CA extra | Tax savings |
|---|---|---|---|---|---|
| 2026 | $55,760 | $426,378 | $370,618 | $44,218 | $142,567 |
| 2027 | $58,176 | $44,214 | -$13,962 | $80,118 | $4,688 |
| 2028 | $58,176 | $44,214 | -$13,962 | $46,134 | $508 |
| 2029 | $58,176 | $44,214 | -$13,962 | $25,385 | -$2,044 |
| 2030 | $58,176 | $44,214 | -$13,962 | $24,399 | -$2,165 |
| 2031 | $58,176 | $44,214 | -$13,962 | $8,758 | -$4,089 |
| 2032 | $58,176 | $44,214 | -$13,962 | -$6,410 | -$5,954 |
| 2033 | $58,176 | $44,214 | -$13,962 | -$6,410 | -$5,954 |
| 2034 | $58,176 | $44,214 | -$13,962 | -$6,397 | -$5,953 |
| 2035 | $58,176 | $44,214 | -$13,962 | -$6,410 | -$5,954 |
Buildings with depreciable basis under about $500,000 to $1,000,000 are often marginal once the study fee and the usability of the losses are considered.
More often worth a closer look
Depreciable basis is $1,600,000, above about $1,000,000, where a study is more often worth pricing, still subject to a real engineering study and whether the deduction is usable. Engineering studies commonly run roughly $5,000 to $15,000, and more for large or complex buildings. Enter an estimated study fee to compare it with first-year tax savings. This is a fee sanity check only, not a bid.
Want a real number? LaviCPA can review the deal, tell you whether a study is likely to pay off, and coordinate the engineering study and the return.
Book a new-client intro →Depreciation on the personal-property portions (generally the five- and seven-year classes, including bonus) is typically recaptured as ordinary income under §1245, up to the gain allocated to those assets. Fifteen-year land improvements and the remaining building are generally §1250 real property: additional depreciation above straight line can be ordinary, and straight-line depreciation on real property is unrecaptured §1250 gain, taxed at a maximum 25%. Cost segregation can therefore turn what would have been 25% unrecaptured gain into ordinary income if the property is sold while those short-life assets still have depreciation on them. The NPV above assumes a full hold and does not model a sale.
Rental losses are usually passive under §469 and may be suspended unless the taxpayer qualifies as a real estate professional (more than 750 hours in real estate trades or businesses, and more than half of personal-service hours in those trades), materially participates, and, where needed, elects to aggregate interests; a passive limited-partner interest will not get there. Some short-term rentals can fall outside the rental-activity rules if average stays are seven days or less, or 30 days or less with significant personal services, and the taxpayer materially participates. That is a separate test from REPS. If losses are suspended, the first-year tax savings on this page are deferred, and the NPV is overstated.
California does not conform to federal bonus depreciation under IRC §168(k), including the OBBBA 100% restoration (FTB Pub. 1001; SB 711 did not adopt that change). This page therefore computes California depreciation as regular MACRS on the same class lives, with no bonus. A California adjustment on Schedule CA / FTB 3885A is typical when federal bonus is claimed. The default 12.3% rate is the regular top California rate; use 13.3% if the 1% mental health tax applies.
Since the TCJA, §1031 is limited to real property. Components treated as personal property may not qualify as like-kind real property in a later exchange. Review classification before a sale or exchange.
If the building was placed in service in an earlier year, a change to a cost-segregation method is often made on Form 3115 in the year of change, with a §481(a) catch-up, rather than by amending prior returns. Automatic change procedures may apply. This page models that catch-up in the study year, including bonus that would have been available in the year placed in service. It is a sketch of the timing, not a method-change memo.
Bonus depreciation is applied automatically from the acquisition and placed-in-service dates, and can be overridden. Qualified property acquired and placed in service after January 19, 2025, generally takes a permanent 100% additional first-year depreciation deduction under OBBBA (IRC §168(k); IRS Topic 704, Publication 946, and Notice 2026-11). Property acquired on or before that date, including property acquired under a written binding contract entered into on or before January 19, 2025, stays on the TCJA phase-down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% after 2026. A calendar-year taxpayer may elect 40% instead of 100% for the first tax year ending after January 19, 2025; use the override to model that election.
Depreciation uses IRS Publication 946 MACRS percentages: half-year convention Table A-1 for 5-, 7-, and 15-year property (200% declining balance for 5- and 7-year; 150% for 15-year), and mid-month convention Tables A-6 and A-7a for 27.5-year residential rental and 39-year nonresidential real property. Bonus is taken first; regular MACRS then runs on the remaining basis. The mid-quarter convention is not modeled; a large amount of personal property placed in service in the fourth quarter can reduce the first-year MACRS rate on that property. Section 179 is not modeled.
Reclassification percentages are editable midpoints drawn from published industry planning ranges (typical combined accelerated allocations by property type, often cited in the mid-teens to the mid-30s, with restaurants, hotels, and medical often higher and warehouses often lower). They are rules of thumb. Actual results depend on construction quality, site improvements, furnishings, and the study itself. Residual basis remains with the building.
This page is a planning estimate from LaviCPA, Los Angeles. It is not an engineering-based cost segregation study, not an appraisal, and not tax advice. Using it does not create an engagement, and its output should not be attached to a return. Any engagement for a study or a return is a separate, written matter. Figures will differ from a qualified study and from the return as filed.
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