Is Cost Segregation Worth It? When It Makes Sense in 2026

You must’ve heard about cost segregation, but is it actually worth pursuing in 2026?

With evolving tax rules, changing property markets, and varying portfolio sizes, the answer depends heavily on your individual portfolio situation.

This guide walks through the key considerations to help you evaluate whether a cost segregation study makes financial sense for your properties this year.

Key takeaways

• Accelerated depreciation can free up cash, but its value depends on how long you plan to hold the property.
• Property type, usage, and age influence potential deductions: STRs and renovated or multi-unit properties typically see the largest benefit.
• Portfolio size matters—multiple properties often make a study more cost-effective due to economies of scale.
• Online algorithm studies are cheaper but less audit-defensible; engineer-based studies are more thorough but pricier.
• Accurate documentation and bookkeeping are essential to support deductions and ensure audit defensibility.

How to decide if cost segregation is worth it

Not every property—and not every investor—is a good candidate. You need to evaluate specific criteria to ensure the tax savings outweigh the fees paid to engineers or tax professionals.

Tax bracket

Your tax bracket directly impacts how much value you get from accelerated depreciation. A higher bracket increases the dollar-for-dollar savings from any depreciation you can accelerate through a cost segregation study.

If your marginal tax rate is 37%, each $10,000 of accelerated depreciation saves $3,700 in federal taxes. If you fall in a lower bracket, say 22%, you would save only $2,200 for the same deduction.

• State taxes: Don’t forget state income taxes. A high federal bracket combined with a high state rate magnifies the benefit.

If you’re limited by passive loss rules, your ability to use depreciation may be constrained. Higher earners who actively manage properties or qualify as real estate professionals get more benefits.

What to do: Estimate your total projected deductions and apply your marginal federal + state rate to see the potential tax impact. This gives a realistic sense of whether the study’s benefits outweigh the costs. Use real estate accounting software to automate the process. 

Property type and age

For residential properties, the value of a cost segregation study depends on usage, age, and renovations.

• Short-term rentals (STRs): Furnishings, appliances, and frequent upgrades make STRs highly eligible for accelerated depreciation on rental property.
• Long-term rentals (LTRs): Key assets like kitchens, bathrooms, HVAC, and flooring in renovated or older units can be reclassified for faster landlord deductions.
• Renovations & acquisitions: Recent improvements or newly acquired properties increase eligible assets, boosting early-year tax benefits.

You should also consider the property’s age. Older properties often have more interior or structural upgrades that can be reclassified. For example, a 20-year-old office building with recent interior renovations may have many assets eligible for accelerated depreciation.

Portfolio size and number of properties

A study typically costs several thousand dollars. For a single small property, the tax savings may not cover the study fee. But for multiple properties, the same study methodology—or combining properties into one analysis—can increase total benefits and reduce per-property costs.

When you own multiple types of properties (residential, commercial, mixed-use) you may find more components eligible for reclassification across your portfolio, which boosts potential accelerated depreciation.

What to do: Evaluate whether you can group smaller properties or apply standardized methods for multiple buildings. The larger your portfolio, the more likely the study is to be cost-effective. Use our free rental property evaluation spreadsheet.

Study cost vs. expected benefit

In 2026, cost segregation studies cost around $5,000–$20,000, depending on property size and complexity.

To decide if the cost is worth it, estimate your ROI. Calculate the total projected tax savings from accelerated depreciation over the first 5–10 years, then subtract study costs.

For smaller properties, partial studies or engineering-based sampling can reduce cost while still capturing most depreciation benefits.

What to do: If your projected tax savings are less than 2–3x the study cost, it may not be financially worthwhile. For large portfolios or high-value properties, the savings can far exceed the cost.

Real Estate Professional (REPS) status

REPS status allows you to deduct losses against active income, rather than being limited to passive loss rules. Accelerated depreciation from a cost segregation study creates deductions, and REPS status determines whether you can use those deductions fully in the current year.

To qualify, you generally need 750 hours of real estate services, and more than half of your personal services must be in real estate trades or businesses.

If you’re an active investor and meet REPS criteria, a study can generate immediate, substantial tax savings. Passive investors may still benefit, but their deductions could be carried forward rather than used immediately.

What to do: Track hours and document your REPS status carefully. Knowing this upfront affects whether the study’s benefit is immediate or deferred. Download our free REPS time tracking sheet to make this process easier.

Also read:

• Best accounting software for rental properties
• Sole proprietor accounting software

When is a cost segregation study not worth it?

While beneficial, a cost segregation study might not yield desired benefits in all situations. Here are two scenarios in which cost segregation isn’t recommended.

• Short-term property ownership: If you plan to sell a property soon after a study can trigger depreciation recapture. The IRS taxes recaptured depreciation at up to 25%, plus ordinary income rates for 5- and 7-year assets. Selling within 1–3 years may eliminate the tax savings, making the study financially ineffective.
• No taxable income to offset: If you don’t have income to use the accelerated deductions against, you create a Net Operating Loss (NOL) that carries forward. While NOLs aren’t harmful, they reduce the immediate cash flow benefit—the primary goal of cost segregation.

Are online cost segregation studies worth it?

Technology has made lower-cost cost segregation options available, but the right choice depends on property type and size.

Algorithm-based online studies

Online platforms use algorithms based on thousands of previous studies to estimate the breakdown of your building components. These reports typically cost between $400 and $1,000.

• Pros: Highly affordable; fast turnaround.
• Cons: Less defensible in an audit; may miss unique nuances of a specific property.

Engineering-based studies

A qualified professional or firm does an in-person evaluation. They inspect and document every component of the property and create a detailed report.

• Pros: Gold standard for audit defense; maximizes every possible deduction.
• Cons: Higher upfront cost; takes longer to complete.

There are no set IRS cost segregation study requirements. You can choose whichever method works for you as long as it stands up to an IRS audit. Online studies often fail at this.

If you own a single-family rental with a basis of less than $500,000, an online study might be sufficient. For large multifamily complexes or commercial buildings, the risk of an inaccurate study outweighs the savings of going cheap. Always consult with a CPA to verify cost segregation study requirements for your specific situation.

Get the most out of cost seg studies

So, is cost segregation worth it in 2026? Cost segregation can be a powerful strategy for accelerating depreciation, improving cash flow, and optimizing tax outcomes—but its value is highly situational in 2026.

Evaluate tax bracket, property type, portfolio size, study cost, and management practices, to make an informed decision about whether pursuing a study will provide a meaningful financial advantage.

Baselane makes the process easier by allowing you to track assets for each property, set a custom depreciation timeline and value, and ensure you claim the largest tax deduction. Get started with Baselane today to streamline your bookkeeping.