Is Cost Segregation Going Away? Key Insights Every Real Estate Investor Needs in 2026

Is cost segregation going away? is a question that comes up whenever tax rules shift, bonus depreciation percentages change, or headlines suggest “the IRS is cracking down.” The reality is more practical: cost segregation is not a temporary loophole; it is a well-established engineering-based method for identifying and reclassifying depreciable components of real property under existing depreciation rules. The IRS has long addressed it in formal guidance, including its Cost Segregation Audit Techniques Guide, which focuses on how to evaluate studies rather than implying the concept is disappearing.

If you want this strategy implemented with clean documentation and a study format that your CPA can actually execute efficiently, Cost Segregation Guys is a strong option to consider, especially when you care about audit-ready support and a disciplined workpaper package that matches how the IRS evaluates these studies.

And if you own or are acquiring rentals, a Cost Segregation Study for Residential Rental Property can be one of the most direct ways to convert a standard 27.5-year depreciation schedule into a front-loaded depreciation profile, when it is done correctly and supported with appropriate asset classification.

Why the “going away” rumor keeps resurfacing

The concern usually comes from one of four places:

1. Bonus depreciation phase-down headlines
   In reality, cost segregation is the classification method; bonus depreciation is just one acceleration mechanism that may apply to certain reclassified assets.
   
2. Increased IRS scrutiny (not elimination)
   The IRS has published detailed criteria for what a reliable cost segregation study looks like and how examiners evaluate them. That’s not a sign the strategy is going away; it’s a sign documentation quality matters.
   
3. Misuse by unqualified preparers
   Overly aggressive studies, “rule-of-thumb” allocations, or thin documentation lead to audit risk and a bad reputation. This creates noise that gets misinterpreted as a policy shift.
   
4. Confusion about what cost segregation actually is
   Cost segregation is not “inventing deductions.” It is allocating purchase price and improvement costs among assets with different recovery periods, based on engineering analysis, construction documentation, and tax depreciation rules.

Cost segregation isn’t a “tax break” that can simply expire

To answer the core question, if cost segregation is going away, it helps to separate “tax incentives” from “tax methods.”

• Cost segregation is a method of identifying and documenting asset classifications (e.g., 5-, 7-, 15-year property) versus 27.5- or 39-year building components.
  
• The depreciation system (MACRS) is statutory and longstanding.
  

In other words, cost segregation is not “one provision” that gets turned off. It operates within the broader depreciation framework.

What changed recently: Bonus depreciation is a moving target, not cost segregation

A meaningful reason investors asked cost segregation going away in prior years was the scheduled TCJA phase-down of bonus depreciation percentages. However, recent legislative and administrative updates indicate that bonus depreciation was restored and made permanent for qualifying property acquired and placed in service after a specified date (notably January 19, 2025), with IRS interim guidance addressing elections and transition rules.

This matters because:

• Cost segregation can identify qualified property components that may be eligible for accelerated first-year depreciation treatment.
  
• When bonus depreciation is available at 100%, the near-term cash-flow impact of a properly documented study can be significantly larger.
  

Even if future legislation adjusts percentages again, that would affect how much you can accelerate in year one, not whether cost segregation “exists.”

If your priority is not just “bigger deductions,” but clean implementation that your CPA can file with confidence, consider engaging Cost Segregation Guys for an engineering-driven study that is structured around defensible asset classification and organized deliverables. The key is a workpaper package that can stand up to IRS review and translate into a depreciation schedule without guesswork.

A better framing than cost segregation going away is: Will the IRS demand better substantiation?

The IRS Audit Techniques Guide emphasizes that reliable studies typically involve individuals with engineering and construction expertise, robust documentation, and clear asset-by-asset rationale.

Common audit friction points

• Land vs. land improvements misallocation
  
• Personal property claimed where the asset is actually structural
  
• Duplicate assets (counting the same component twice)
  
• Unsupported estimates without tie-outs to purchase documents, contractor pay apps, or as-built data
  
• Overuse of “short-life” categories without an appropriate basis

These issues don’t mean the strategy is going away; they mean the “cheap and fast” version is risky.

Where cost segregation still delivers strong value

Even in conservative scenarios, cost segregation can be attractive when you have:

1) Newly acquired income property

A purchase triggers a basis allocation exercise anyway. A study can formalize it and often reclassify a meaningful portion into shorter-life property.

2) Major renovations or repositioning

Improvements create a new depreciable basis. A study can track components correctly and may help you capture partial dispositions when old components are retired (your CPA should confirm method eligibility and elections).

3) Portfolio scale or repeatable property types

If you are buying similar assets repeatedly (multifamily, self-storage, light industrial), you benefit from repeatable documentation workflows, so long as each study is still property-specific and supportable.

What about “Cost Segregation on Primary Residence”?

You will sometimes see the phrase Cost Segregation on Primary Residence in investor circles, and it’s important to handle it carefully. In general, personal-use residential property is not depreciable, so a “cost segregation study” on a pure primary residence typically does not produce depreciation deductions the way an income-producing property does.

Where the discussion can become relevant is when a residence has a business or income-producing component, such as:

• A portion used in a qualifying business/home office context (subject to strict rules and limitations)
  
• A portion converted to rental use
  
• A property that is primarily a residence but includes a separately rented unit (e.g., ADU)
  
• A change-in-use scenario where the property becomes a rental later
  

In those mixed-use cases, depreciation and basis allocation become more nuanced, and a qualified tax professional should evaluate whether an engineering-based allocation approach is appropriate. The principle remains the same: deductions come from depreciable use, not from the label “cost segregation.”

Why cost segregation is unlikely to “go away” (and what could realistically change)

If you ask, Is cost segregation going away, the most realistic outcomes are not elimination, but refinement:

What could change

• Bonus depreciation percentages (legislation can expand, reduce, or add transition rules).
  
• Documentation expectations (IRS audit focus can intensify).
  
• Industry standards (more emphasis on engineering credentials, tie-outs, and reconciliations).
  

What is unlikely to change

• The underlying concept that different building components have different recovery periods under depreciation rules
  
• The need for a substantiated basis for allocation
  
• The IRS framework for examining cost segregation studies (it already exists and is continually updated, which suggests continuity)

Practical guidance for investors: how to reduce risk and increase ROI

If you want the benefits without the headaches, focus on these steps:

1. Start with eligibility and timing
   Confirm the placed-in-service date, property type, and whether you are analyzing a purchase, improvement, or catch-up scenario.
   
2. Treat the study as an audit file, not a marketing deliverable
   The best studies read like a defensible technical report—because that is what they are.
   
3. Coordinate with your CPA early
   Elections, method changes, depreciation conventions, and filing posture should be planned before the study is finalized.
   
4. Document, document, document
   Purchase documents, closing statements, invoices, cost breakdowns, and construction drawings materially improve defensibility.

Final answer

Is cost segregation going away? In practical terms, no. Cost segregation is rooted in the depreciation framework and has longstanding IRS examination guidance focused on how to evaluate studies, not how to eliminate them. The more accurate takeaway for 2026 is that documentation quality, engineering rigor, and clean implementation matter more than ever.

If you want a study designed for real-world execution, organized schedules, supportable classifications, and a process that respects how depreciation is actually filed, consider Cost Segregation Guys as a documentation-first provider. A strong study should not only maximize benefits, but also keep your position defensible and your CPA’s implementation straightforward.