Does cost seg mean bundle your improvements to year one?

Question

Hello BP community - I am getting ready to purchase my first multi-fam with the plan to buy and hold long term with long-term rentals.  If I were to do a cost seg later in 2026 for my 2026 taxes does it make sense (if I have the money) to do ALL of my improvements in year one on this property (windows, mini-splits, new kitchen appliances, roof) so that I obtain the maximum number of years from these items (meaning they are no longer old) for purposes of the cost segregation.  Am I thinking of this properly that NEW items have more value which will translate to more depreciation when it comes to depreciating each item in the house and bundling all new items in year one allows me to pay for the cost seg once and be done with it, reaping the benefits for years to come.  This is better than doing my intended improvements over time.  If I'm all wet, please help me understand.

Paul Hubbard · Answer

You’re thinking in the right direction!

Cost segregation value isn’t really about new vs. old — it’s about reclassifying components from 27.5-year depreciation to 5, 7, or 15-year schedules. A new roof is still 27.5 years. But mini-splits, appliances, and certain interior components can qualify for shorter lives and potentially bonus depreciation.

The real reason front-loading makes sense: bonus depreciation. Items reclassified as 5/7/15-year property may qualify — currently phasing down (40% in 2025, 20% in 2026 under current law). Year one improvements captured in a cost seg get the maximum benefit while those rates still exist.

You’re also right that doing one cost seg on a fully improved property is more efficient than multiple studies as improvements happen over time. One study, one fee, maximum components identified.

Two things to nail down with your CPA before you commit: (1) passive activity loss rules — depending on your AGI you may not be able to use all the depreciation in year one anyway, and (2) whether bonus depreciation rates change before you file your 2026 return. Tax law on this is moving.

Right instinct — just make sure the numbers work with your specific tax situation before you spend the capital.​​​​​​​​​​​​​​​​

Jason Malabute · Answer

Hey Amy, you're directionally right but you don't actually have to cram every improvement into year one for the cost seg to work. A cost segregation study can cover the original purchase basis and also pull in capital improvements you make later, so windows, mini-splits, appliances, and a roof don't all have to be in service the same year you buy. Improvements added down the road can be capitalized and depreciated on their own schedules, and a future cost seg study can fold those costs into the analysis when you're ready. The bigger driver of timing is usually whether you'll have enough taxable income that year to actually use the accelerated depreciation, so I'd map that out before deciding when to pull the trigger. The exact answer depends on your facts though, so worth running this by your own CPA before you commit the capital.

Basit Siddiqi · Answer

You can get a cost segregation study with a two part analysis.One for the purchase and one for the improvements.

Ashish Acharya · Answer

Hi Amy! You’ve gotten some great replies already, but here’s a quick tax perspective. A cost segregation study can include both the original purchase and later capital improvements, so some investors do wait until major renovations are completed before ordering the study.

That said, you don’t have to bundle everything into year one for it to work. Improvements like windows, HVAC, appliances, or roofing can be capitalized and depreciated on their own schedules, and if you do a cost seg later, those improvements can often be incorporated into the analysis.

The bigger factor is usually timing and taxable income. Many investors time cost seg and bonus depreciation for a year when the deductions will actually offset meaningful income.

Jonathan Hersh · Answer

@Amy Frisella couple things to add here.

The cost seg study itself is based on your total depreciable basis -- purchase price minus land, plus any improvements you've capitalized. So if you buy for $500k and put $80k into renovations before placing it in service, the study covers the full $580k basis. You don't need to do a separate study for each improvement.

Where the timing matters: with 100% bonus depreciation, any 5-year, 7-year, or 15-year components identified in the study are deductible in full in Year 1. So yes, completing renovations before your first tax filing means those costs get included in the study and potentially accelerated.

But the items you listed have different recovery periods. Appliances and flooring are 5-year property -- they benefit the most. Mini-splits are typically 5 or 7-year depending on classification. Windows, roof, and structural components are 27.5-year -- a cost seg study doesn't change that. Those items don't accelerate regardless of when you install them.

The real question is whether the total reclassifiable basis justifies a study. On a multifamily with $500k+ in building value, it almost always does.

Malik Javed · Answer

@Amy Frisella

You’re thinking in the right direction, but a few key points to clarify:

A cost seg early on is usually a good move, and bundling renovations can save you from paying for multiple studies. But “new” items don’t create more depreciation just because they’re new—it’s all based on cost and how items are classified. Also, big-ticket items like roofs and windows are still depreciated over 27.5 years, so they don’t benefit much from acceleration.

Most importantly, doing all improvements in year one isn’t always better. It only helps if you can actually use the losses (based on your income, passive activity rules, etc.). In some cases, spreading improvements out can be more efficient.

Definitely worth running this by a CPA who understands real estate before locking in your plan. If you delay the rehab until 2027, you may be able to claim retirements in 2027 on certain assets such as roof, windows, etc. that are removed as a result of the remodel…additional benefits in 2027.  Please dm me if you’d like to learn more.

Matthew Bates · Answer

Hey Amy, great question especially as you’re jumping into your first multi-family and thinking ahead on taxes. you’re actually thinking strategically about maximizing depreciation especially on large projects it's so so on smaller jobs but still helps , but the timing and mechanics work a bit differently than bundling everything in “year one” for the original purchase depreciation.

A cost segregation study reclassifies parts of the property’s basis into shorter-life assets (like 5-year personal property for appliances/carpeting, 7-year for certain fixtures, and 15-year for land improvements like landscaping or parking) instead of the standard 27.5 years for residential rental property. This accelerates deductions, and when combined with bonus depreciation (which is back at 100% for qualifying assets placed in service after certain 2025 dates under recent changes), you can often deduct those shorter-life items fully in the year they’re placed in service. I did it on a 1.4M rv resort last year helped us out quite a bit.

Does cost seg mean bundle your improvements to year one?

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