How to Read Your Cost-Seg Feasibility Estimate

Section-by-section walkthrough of the feasibility estimate result page — headline numbers, asset breakdown, 10-year schedule, and the three guard-rail callouts.

How to Read Your Cost-Seg Feasibility Estimate

What you'll learn. What every section on the /cost-seg/study/ result page means, including the threshold banner, headline grid, asset breakdown, 10-year schedule, and three guard-rail callouts.

The threshold banner at the top

The page opens with one of three neutral labels:

• Above threshold — estimated Year-1 federal tax effect of approximately $5,000 or more. This is the screening floor at which property owners commonly evaluate further with a CPA.
• Near threshold — approximately $2,000–$5,000. The estimate is close enough that the typical $3,000–$8,000 engineering-study fee may or may not pencil.
• Below threshold — under approximately $2,000. A study likely costs more than it would save in the year of acquisition, though prior-year acquisitions can change the math via §481(a) catch-up.

The labels are intentionally neutral. The page does not say "you should commission a study." That decision belongs to the property owner and a qualified CPA.

The headline grid (four numbers)

• Estimated Year-1 federal tax effect. The marginal tax bracket entered, multiplied by the cost-seg Year-1 deduction. Round numbers; results are not guaranteed.
• Year-1 deduction (accelerated). The total first-year write-off under cost segregation: bonus depreciation on accelerable basis, plus first-year MACRS on the non-bonus remainder, plus straight-line on the building shell with mid-month convention.
• Year-1 deduction (standard). What the property owner would deduct without cost segregation — straight-line over 27.5 years (residential) or 39 years (commercial) with mid-month Y1.
• Accelerable basis %. The slice of depreciable basis the engine reclassified into 5-year, 7-year, and 15-year property.

For long-term rentals where the property owner is not a real-estate professional, the grid switches to a two-card layout: "Year-1 deduction generated" and "Year-1 cash impact (without REPS / passive income)." More on that below.

Asset breakdown table

The asset-breakdown table mirrors the table a full engineering study produces:

| Asset class | Recovery years | Amount | % of basis | Method | Convention | | --- | --- | --- | --- | --- | --- | | 5-year | 5 | ... | ... | 200% DB | HY or MQ | | 7-year | 7 | ... | ... | 200% DB | HY or MQ | | 15-year | 15 | ... | ... | 150% DB | HY or MQ | | 27.5-year (or 39-year) | 27.5 / 39 | ... | ... | S/L | MM |

Convention codes: HY = half-year, MQ = mid-quarter (triggers on Q4 acquisitions per IRC §168(d)(3)), MM = mid-month (always for real property).

Adjustments applied

A flat list of every feature bump the questionnaire generated — kitchen items, flooring, lighting, fencing, pool, landscaping, and so on. Each row shows the description, the percentage change, and the asset class. Reviewing this list quickly surfaces over-claims (a "high-end finish" plus every individual upgrade item) and under-claims (a missed pool or detached structure).

If the cumulative reclassification would exceed 50%, the engine scales the entire allocation back to a 50% cap. This is a safety valve — anything beyond 50% personal-property reclassification on a typical residential rental is engineering-study territory.

Depreciation schedule comparison (10 years)

A side-by-side table showing standard depreciation vs. cost-seg depreciation for the first 10 years, plus cumulative differences. The takeaway: cost segregation accelerates timing. Total deductions over the building's full life are similar — the cost-seg column is front-loaded and the standard column is flat. By year 10, the cumulative-difference column shows how much depreciation the cost-seg approach has pulled forward.

Section 481(a) catch-up callout

If the property was placed in service in a prior tax year, the engine computes a §481(a) adjustment — the difference between what the property owner should have depreciated under cost-seg and what was actually claimed under straight-line. A look-back catch-up is filed via Form 3115 with DCN 7 under Rev. Proc. 2024-23. It is a method change, not an amended return, and the entire catch-up flows into the current year.

§469 passive-activity-loss callout

If the property is a long-term rental and the property owner did not mark real-estate-professional status, the page surfaces a yellow callout: passive-activity-loss rules under IRC §469 may suspend the Year-1 deduction. With no passive income to absorb the loss, the deduction is reported on Form 8582 and carried forward until passive income is generated or the property is sold.

The callout explains the two paths around the gate: REPS (§469(c)(7), both prongs) or the short-term-rental carve-out (§469(c)(2), 7-day average plus material participation).

§1245 recapture warning

If the property owner indicated a planned disposition within five years — or it's a short-term rental without an explicit 5-plus-year hold commitment — the page surfaces a §1245 recapture warning. Reclassified personal property is §1245, meaning accumulated depreciation is recaptured as ordinary income on disposition (not at the §1250 25% unrecaptured-gain rate). For short holds, recapture can claw back much of the Year-1 cash benefit.

What gets filed

A small "What gets filed" callout names the forms: Form 4562 Part III for current-year reclassification, or Form 3115 with §481(a) adjustment under DCN 7 for prior-year look-back. The actual filing is your CPA's job — the callout exists so the conversation with them is short.

Download and share

The page generates a downloadable PDF of the estimate and a read-only share link. The share link is revocable from the same page if you want a CPA to review without granting account access.

Run a fresh screening → · Try a 2024 look-back scenario →

Sources

• IRC §168(d)(3) — Mid-quarter convention rules
• IRC §469 — Passive activity losses; §469(c)(2) STR carve-out; §469(c)(7) REPS
• IRC §1245 — Ordinary-income recapture on disposition of depreciable personal property
• Rev. Proc. 2024-23, DCN 7 — Automatic accounting-method change for cost-seg §481(a) catch-up
• IRS Publication 946 — MACRS percentage tables (A-1, A-5, A-6)

Disclaimer. This tutorial describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.