No, Cost Segregation is not disappearing; it is a separate, permanent tax method used to reclassify property components into shorter depreciation periods, which accelerates deductions. The misconception stems from the scheduled phase-out of Bonus Depreciation, which acts as an optional “turbocharge” to the Cost Segregation strategy, but is not the core engine itself.
While Bonus Depreciation was previously scheduled to phase out completely by 2027 (dropping to 80% in 2023, and 60% in 2024), recent legislation has reinstated 100% Bonus Depreciation permanently for qualifying property acquired and placed in service after January 19, 2025. Even when Bonus Depreciation was reduced, Cost Segregation still provided powerful tax benefits by accelerating deductions, but the permanent return of 100% Bonus Depreciation means the combined strategy is more powerful than ever.
Cost Segregation vs. Bonus Depreciation
- Cost Segregation is Permanent: It is a method of reclassifying property components into shorter 5-, 7-, and 15-year depreciation periods, which is not tied to the Bonus Depreciation schedule.
- Bonus Depreciation is the Turbocharge: It is an additional deduction that can be applied to the short-life assets identified by a Cost Segregation study, allowing for immediate expensing.
Bonus Depreciation Phase-Out & Update
- Original Schedule: The deduction was scheduled to drop annually: 80% (2023), 60% (2024), 40% (2025), 20% (2026), and 0% (2027).
- Current Status (Updated): 100% Bonus Depreciation has been permanently reinstated for qualified property acquired and placed in service after January 19, 2025.
- Impact on Benefits: Whether Bonus is 100%, 80%, or 0%, Cost Segregation still provides significant tax benefits by accelerating deductions and increasing cash flow. With the return of 100% Bonus Depreciation, the combined strategy is maximized.
