Aaron and Priya's situation
Aaron is a 36-year-old senior product manager at a Denver SaaS company, earning $235K. Priya is 34, a freelance graphic designer with 2025 self-employment income of $145K. They closed on a 4-bedroom Denver SFR in February 2026 for $920,000, with 25% down ($230K). They're renting it on a 12-month lease at $4,800/month — placed in service the same month.
Priya's CPA was the one who raised cost segregation, two weeks after closing. "If we're going to do this," he said, "we want it on the 2026 return. The placement-year bonus is everything." Priya asked what that meant. This page is the answer.
What changed under OBBBA
The One Big Beautiful Bill Act, signed July 2025, did one thing that matters for cost segregation: it permanently restored 100% bonus depreciation under IRC §168(k) for qualifying property placed in service after January 19, 2025.
Before OBBBA, bonus depreciation was scheduled to phase out — 60% in 2024, 40% in 2025, 20% in 2026, zero in 2027. That phase-out was the rationale for many "do cost seg now before the rates drop" articles. OBBBA reversed it. As of January 19, 2025, every reclassified component (5-, 7-, and 15-year property) is fully expensed in the placement year. Permanently.
For Aaron and Priya, this means the entire 5/15-year reclassification on their $920K Denver SFR — typically about 18% of depreciable basis for an LTR, slightly more if there's significant landscaping or finished basement — is fully deductible in 2026. No phase-down. No phase-out. No timing decision.
The math, worked
| Line | Amount | Source |
|---|---|---|
| Purchase price | $920,000 | closing |
| Land allocation (22%) | −$202,400 | Denver assessor |
| Depreciable basis | $717,600 | computed |
| 5/15-yr reclassification (≈19% LTR) | $136,344 | benchmark |
| OBBBA bonus depreciation (100%) | $136,344 | §168(k) |
| Year-1 federal tax savings @ 32% | $43,630 | — |
Study fee: $1,295 at Cost Seg Smart for properties in the $700K-1M range. ROI: 34×. Net benefit: $42,335 federal landing on the 2026 return.
Note: Priya is a real estate professional candidate (freelance design work doesn't disqualify her, but her hours need to come from real estate, not design). For year one as a brand-new owner, she's likely not REPS-qualified. The $42K loss will be suspended as passive unless they have other passive income or one of them transitions toward REPS in future years. See the Long-Term Rental W-2 persona for the suspended-loss mechanics.
Why "year one" matters
Year one is the cleanest case for cost segregation for three independent reasons:
1. Maximum bonus depreciation
OBBBA's 100% bonus rate captures the full reclassified amount in the placement year. After year one, you depreciate the remaining components on their normal MACRS schedules — 5-year property over 5 years, 15-year over 15 years. Year one captures all the bonus; subsequent years are slow.
2. No §481(a) catch-up needed
If you wait and do cost seg in year three or four, you can still recover the missed depreciation via Form 3115 (see the Lookback Investor). But the math is nearly identical to doing it in year one and then just depreciating forward — except you've fronted the study fee earlier and earned interest on the recovered tax savings.
3. Component-level documentation is cleanest
The cost seg engineer walks the property close to the placement date, with original closing documents, original photos, and as-built drawings still readily available. Five years later, components have been replaced, paint colors have changed, the survey is harder to validate. Year-one studies always document better.
The placement-year deadline
The cost seg study itself doesn't have to be completed by December 31. The study can be completed any time before the tax return is filed for the year of placement-in-service. For Aaron and Priya, that means up through April 15, 2027 (their 2026 return) — or October 15, 2027 with extension.
What MATTERS is that the property was placed in service in 2026. They placed it in service in February 2026 when they signed the lease and the property was rent-ready. As long as the study is completed and Form 4562 reflects it before they file, year-one bonus applies.
The practical timing: Cost Seg Smart's automated study takes 14 days. Order it in February-November 2026 and you have the study in hand well before tax season. There's no good reason to delay.
The decision tree
When this is still a NO
- Property under $200K basis. Study fee economics. Yield falls below 10× ROI.
- Plan to flip within 18 months. Recapture on sale eats most of the upfront benefit.
- Owner-occupied primary residence (full personal use). Cost seg doesn't apply. Different framework — see the House-Hacker if it's a duplex with a rented unit.
- Mostly-land purchase (60%+ land allocation). Coastal beach properties, downtown urban lots. Less depreciable basis to work with — math still works but yield drops sharply.
What Aaron and Priya should actually do
Order the cost seg study now. The study takes 14 days at Cost Seg Smart's $1,295 price for their basis tier. They receive the full report — IRS Audit Techniques Guide aligned, 35-40 pages, component-level depreciation schedule — within 2 weeks. They hand it to their CPA. The CPA reflects it on Form 4562 with their 2026 return. Year-one federal benefit: $43,630.
If Priya transitions toward real-estate professional status in 2027 by reducing her design freelance hours, the suspended passive loss from this year unlocks. That's a future-year planning conversation worth having now.
Lock in year-one bonus depreciation
If you closed in the last 12 months, the study takes 14 days at Cost Seg Smart and the $1,495 study fee captures the maximum possible year-one deduction. Don't miss the placement-year window.
Disclosure. This page is operated by Cost Seg Smart LLC. The "order a study" CTA routes to costsegsmart.com, the same operator. Numbers in the worked example are modeled from Cost Seg Smart's 2026 benchmarks dataset (n=260 studies). Your actual study will differ. Nothing on this page is tax, legal, or financial advice — consult a qualified CPA.