How we calculate your cost segregation ROI.

The hero metric

Every calculator on the network shows you a deduction. This one is the only one in the family designed to answer the question that actually controls the purchase: does the study fee pay for itself in Year 1? The answer is almost always yes — but "almost always" is doing more work than it might look like. This calculator exists because too many buyers stall on a $795 fee that's about to return them $40K, and a smaller number of buyers order a study that, given their bracket and participation, was never going to pay them back the way the sales page promised.

The headline number on the calculator is ROI multiple — Year-1 federal tax savings divided by the study fee. We picked that over "Year-1 savings" or "net benefit" because the multiple is the only framing that lets you compare a $495 study against a $2,995 study against a free DIY spreadsheet on equal terms. A $40K savings on a $795 study is a different decision than a $40K savings on a $2,995 study, even though the deduction is identical.

The multiple is the only framing that lets you compare a $495 study against a $2,995 study on equal terms. — Cost Seg Smart Research Team

The four-input formula

The headline math has exactly four inputs and one derived constant. There is no fifth thing happening behind a curtain. Here is the whole formula:

Purchase price, federal bracket, and state rate come straight from the user. Acceleration percentage is looked up from the property type with an override. Bonus rate is looked up from the acquisition year. Study fee is looked up from the purchase price tier. That's the whole calculator.

Basis and the land question

The textbook math actually uses depreciable basis, not purchase price. The IRS only lets you depreciate improvements, not land. A common simplification is to assume land is 20% of purchase price — so a $500K property has a $400K depreciable basis. Use that, and the Year-1 deduction in the example above drops from $150,000 to $120,000.

An actual study will produce a defensible land-improvement split based on the county assessor's allocation, a desktop appraisal, or in some cases a residual valuation method. That number — the one your CPA actually files — is what's in the report you're buying. The number on this page is the rough cut.

Acceleration percentages

Acceleration is the share of depreciable basis a cost segregation study reclassifies out of the 27.5-year (residential) or 39-year (commercial) straight-line bucket and into 5, 7, and 15-year buckets where bonus depreciation lives. Higher acceleration = more Year-1 deduction.

The defaults the calculator uses, by property type:

These are medians of completed studies in the Cost Seg Smart portfolio across 200+ properties from 2022 to 2025. Variance is real — STR studies have landed at 38% (heavily decorated mountain cabin with hot tub and sauna) and at 22% (concrete-and-stucco Florida new-build). The default lands somewhere reasonable; the override is there because you might know something the lookup doesn't about your property.

Bonus depreciation by year

Bonus depreciation is the multiplier that turns reclassified components into a Year-1 deduction. At 100%, everything reclassified hits Year 1. At 60%, only 60% does and the rest stretches over the asset class life. The schedule the calculator uses:

The 2024 dip to 60% was the low point of the post-TCJA phase-down before the One Big Beautiful Bill Act ("OBBBA") restored 100% retroactively to January 2025 and prospectively through 2029. If you bought in 2024 specifically, you get the rough end of the calendar — at 60% bonus, your Year-1 deduction is materially smaller than a 2025 acquisition with otherwise identical math.

Bracket × state stacking

Once you have a Year-1 deduction, your bracket converts it into cash. The seven federal brackets (10, 12, 22, 24, 32, 35, 37) all show up in the input. State is optional because rates vary too much for a useful default — and because the meaningful bracket here is your marginal rate, not your effective rate, and most users have to look up the marginal number.

Stacked brackets matter more than people think. A California taxpayer in the 32% federal bracket is in the 9.3% state bracket; the combined marginal is ~41.3%, not 32%. The calculator adds these straight because both are deductions against the same dollar of income — there's no federal-on-state interaction that needs unwinding.

Active, passive, and §469

This is the part of the math the marketing pages usually skip. Under IRC §469, rental losses are passive by default. A passive loss can only offset passive income — not W-2, not business income, not interest. If you generate a $120,000 cost-seg loss and you have no other passive income, the loss suspends until you have some, or until you sell the property.

The two main exceptions:

• Real Estate Professional Status (REPS) — 750+ hours and more than any other trade or business. Now your rentals are non-passive and the loss offsets ordinary income.
• Short-Term Rental loophole — average guest stay of 7 days or less, plus material participation (100+ hours, more than anyone else). Bypasses §469 without REPS.

If you select "Passive investor" in the calculator, the headline multiple shows zero and a warning explains the suspension. The deduction isn't lost; the timing changes. For investors who plan to sell in 5–10 years, the eventual unlock-on-sale still beats the alternative of leaving deductions on the table.

The 10-year cumulative number

The smaller "10-year cumulative savings" line under the hero metric is the sum of (a) Year-1 reclassified deduction, plus (b) nine years of remaining straight-line depreciation, multiplied by your combined federal+state rate. It's a coarser number than the Year-1 one because it ignores hold-period risk, recapture on sale, and the time value of money.

For the standard $500K STR / 32% case, the 10-year number lands at ~$52,400 — meaningfully higher than the Year-1 alone but not 10× higher, because the bulk of the value is concentrated in the Year-1 bonus deduction.

Lookback via Form 3115

If you bought a property 2–7 years ago and never did a cost seg, the difference between what you depreciated and what you could have depreciated is recoverable in the current year via a §481(a) adjustment on Form 3115. This is one of the most underused moves in real estate tax, because it requires zero amended returns and produces a single large Year-1 catch-up deduction on top of the regular Year-1 number.

The calculator shows a "Lookback unlock" callout when the acquisition year is in the past, with an estimated catch-up amount equal to the straight-line annual times the number of missed years times the combined rate. The real study's 3115 will be more accurate — but the estimate is honest about the rough size of the opportunity.

What we deliberately don't model

Calculator omissions are choices. Here are ours:

Depreciation recapture on sale

Recapture at ordinary income rates (capped at 25% for §1250, full ordinary for §1245) can claw back a meaningful share of the Year-1 benefit on exit. Modeling it correctly requires a hold-period input and assumptions about your exit basis. The recapture calculator on costsegsmart.com handles that.

NIIT (Net Investment Income Tax)

Investors above the NIIT thresholds pay an extra 3.8% on rental income that cost seg shelters. NIIT is left off the headline to keep the formula readable; in practice it raises ROI by ~5–10% for affected buyers.

Time value of money

The 10-year cumulative number is undiscounted. A $1,000 deduction in Year 1 and a $1,000 deduction in Year 10 are not the same thing, and a serious analysis would discount future deductions at ~5–7%. The calculator doesn't, because the Year-1 number dominates by such a wide margin that present value adjustments rarely change the decision.

State-by-state §168(k) decoupling

About a dozen states decouple from federal bonus depreciation rules, producing a separate state depreciation schedule that doesn't get the Year-1 kicker. The calculator applies state rate to the full federal deduction — which is correct in conformity states and slightly aggressive in decoupled ones. Net effect: state savings might be 10–30% lower than shown if you live in California, Massachusetts, or one of the other non-conformity states.

Sources

IRC §168(k) — Bonus depreciation, phase-down, OBBBA 2025 restoration.
IRC §469 — Passive activity loss limitations.
IRC §1245, §1250 — Depreciation recapture on real and personal property.
IRS Pub 946 — How to depreciate property; MACRS recovery periods.
Rev. Proc. 87-56 — Class lives and recovery periods.
Form 3115 — Application for change in accounting method (§481(a) adjustment).
Treas. Reg. 1.263(a)-3 — Tangible property regulations (the "repair regs").
Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997) — Foundational case authorizing engineering-based cost segregation.
KBKG ATG (2024) — Audit Technique Guide on cost segregation, methodology baseline.