Pannysylvania Magazine

RALEIGH, N.C. — September 10, 2026 — Commercial and investment property owners who assumed cost segregation wasn’t worth pursuing are working from outdated math, according to K-38 Consulting. With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, Congress permanently restored 100% bonus depreciation — reversing a multi-year phase-down that had significantly reduced the near-term value of cost segregation studies for property owners who considered one in recent years.

“A lot of investors ran the numbers on cost segregation two or three years ago, when bonus depreciation was already phasing down, and decided it wasn’t worth the cost of the study,” said Dallas Alford IV, CPA, Founder of K-38 Consulting. “That math has changed completely. Investors who wrote this off need to take another look, because the deduction they’d get today looks nothing like what they were quoted before.”

What Cost Segregation Actually Does

Cost segregation is an engineering-based study that reclassifies specific components of a commercial or investment property — electrical systems, plumbing fixtures, flooring, land improvements, and specialized building systems — out of the standard 39-year (commercial) or 27.5-year (residential) depreciation schedule and into much shorter 5-, 7-, or 15-year categories. On a typical property, a cost segregation study identifies 20% to 35% of the depreciable basis as eligible for this accelerated treatment.

Under the now-permanent 100% bonus depreciation rule, every dollar reclassified into a short-life category can be deducted in the first year, rather than spread across decades. For a property with several million dollars in depreciable basis, that difference translates into a substantial first-year deduction rather than a benefit an investor barely notices spread across the standard depreciation timeline.

“Real estate investors already understand depreciation as a benefit of owning property,” Alford said. “What a lot of them don’t realize is how much of that benefit they’re leaving unclaimed by depreciating everything on the standard 39-year schedule instead of identifying what actually qualifies for a much faster write-off.”

Who Benefits Most From a Cost Segregation Study

K-38 Consulting says several categories of real estate investors are particularly well positioned to benefit from the current rules:

Investors who acquired or renovated property in recent years without a study. A cost segregation study can generally be applied retroactively through a change in accounting method, allowing an investor to capture previously missed accelerated depreciation as a catch-up adjustment in the current tax year — without amending prior returns.

Active real estate professionals. Investors who qualify as real estate professionals under IRS rules can often apply cost segregation-driven losses directly against other active income, rather than facing passive activity loss limitations that restrict how quickly the benefit can be used.

Owners of multifamily and mixed-use properties. The mix of building systems and improvements in these property types often yields a higher-than-average share of components eligible for short-life reclassification.

Investors planning new acquisitions. With bonus depreciation now permanent rather than phasing down, investors no longer need to rush a purchase or renovation timeline to capture the benefit before it declines further — removing a source of time pressure that shaped acquisition planning in recent years.

“The permanence of this rule is arguably more valuable than the 100% rate itself,” Alford said. “Investors can now build cost segregation into their standard due diligence process on every acquisition, rather than treating it as a one-time opportunity tied to a shrinking window.”

Common Mistakes Investors Make With Cost Segregation

K-38 Consulting says even investors who understand the basic value of cost segregation frequently make avoidable mistakes that reduce the benefit they actually capture:

Waiting too long after acquisition. While a study can be applied retroactively, investors who wait years to pursue one lose the time value of the deduction they could have been using all along.

Using a generic, non-engineering-based study. Not all cost segregation providers use the detailed, engineering-based methodology the IRS expects. A study that doesn’t hold up to scrutiny can create more risk than value if the return is examined.

Failing to coordinate with overall tax strategy. Cost segregation deductions interact with passive activity rules, alternative minimum tax considerations, and an investor’s broader income picture — a study pursued in isolation, without that context, can produce a less favorable outcome than one integrated into a full tax strategy.

Assuming the opportunity only applies to large properties. While the dollar value scales with property size, mid-size commercial and multifamily properties frequently have meaningful qualifying components that smaller investors overlook simply because they assume the strategy is reserved for large institutional owners.

“The technical accuracy of the study matters as much as the decision to do one in the first place,” Alford said. “A poorly documented study can create real exposure if it’s ever reviewed, while a properly done one holds up and delivers the full value an investor is entitled to.”

What K-38 Consulting Recommends

Given the current rules, K-38 Consulting recommends real estate investors:

• Order a cost segregation study on any commercial or investment property acquired, built, or substantially renovated in recent years, even if a study wasn’t pursued at the time — the retroactive catch-up option may still capture the full value.
• Reassess prior decisions made during the bonus depreciation phase-down, since the math that made a study seem not worth pursuing two or three years ago no longer reflects current law.
• Build cost segregation into acquisition due diligence, evaluating the potential benefit before closing rather than treating it as an afterthought.
• Confirm real estate professional status where applicable, since that classification significantly affects how quickly cost segregation-driven deductions can be used against other income.
• Work with a specialist to properly document the engineering-based study, since the reclassification must be substantiated to withstand IRS scrutiny.

How K-38 Consulting Supports Real Estate Investors

K-38 Consulting’s cost segregation services help commercial property owners and real estate investors identify and document accelerated depreciation opportunities under the current, permanent bonus depreciation rules. The firm frequently pairs this work with its real estate CFO services and broader outsourced CFO services, helping investors understand not just the available tax savings, but how to deploy the resulting cash flow strategically across a growing portfolio.

“A cost segregation study generates real, immediate cash flow,” Alford said. “The investors who benefit most aren’t just claiming the deduction — they’re reinvesting that cash intentionally into their next acquisition or improvement, rather than letting it sit unused.”

About K-38 Consulting

K-38 Consulting provides fractional and outsourced CFO services, controller services, and tax strategy — including R&D tax credit and cost segregation services — to startups and midsize businesses across the country. The firm serves clients in SaaS, biotech, healthcare, law, ecommerce, CPG, construction, and real estate, delivering the financial leadership, forecasting tools, and strategic guidance typically available only to companies with a full in-house finance team. K-38 Consulting is headquartered in Raleigh, North Carolina, with clients nationwide.

Media Contact: K-38 Consulting 3809 La Costa Way, Raleigh, NC 27610 (910) 262-4412 [press contact email] https://k38consulting.com

Media Contact
Company Name: K38 Consulting, LLC
Contact Person: Dallas Alford
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Phone: 9102624412
Address:3809 La Costa Way
City: Raleigh
State: NC
Country: United States
Website: https://www.k38consulting.com/