The Future of Cost Segregation: Why 100% Could Be Coming Back
What if one of the most powerful tools in real estate investing was quietly coming back into full force?
Cost segregation isn't just a tax strategy. It's a time machine for your money.
Before we dive into what may be coming, let's first get clear on what cost segregation actually is, and why it's such a game-changer for anyone owning real estate—especially in the world of self-storage.
What Is Cost Segregation?
Cost segregation is a strategic tax planning tool that allows real estate owners to accelerate depreciation deductions by reclassifying certain components of a building from the standard 27.5- or 39-year depreciation schedule to a much shorter schedule—5, 7, or 15 years.
In plain English? It means you can front-load your depreciation deductions to significantly reduce your taxable income now rather than over decades. That frees up cash flow early in the investment lifecycle—cash you can use to reinvest, grow, or stabilize operations.
Why It Matters (Especially in Storage)
In storage, where facility components like fencing, security systems, paving, and signage play a critical role, cost segregation can be a financial lever with serious torque. It allows operators to:
Realize massive upfront deductions
Offset rental income (and sometimes W-2 income)
Reinvest that early capital into acquisitions, upgrades, or debt reduction
And for years, the bonus was even sweeter: 100% bonus depreciation was allowed under the Tax Cuts and Jobs Act of 2017. That meant investors could immediately deduct the full cost of eligible property in the first year. It was a golden age of accelerated tax savings.
But starting in 2023, that number began to step down—80%, then 60%, and so on.
So, what's the buzz about 100% making a comeback?
A Potential Return of 100% Bonus Depreciation
Legislative proposals are circulating. Bipartisan conversations are heating up. And there's a growing awareness in D.C. that restoring 100% bonus depreciation could be the economic stimulant that real estate and small business investors need right now.
Why the momentum?
Inflationary pressure is hitting operators hard. Restoring 100% bonus depreciation is a proven way to return real capital to businesses.
Election-year economics: Politicians love tools that directly benefit business owners and stimulate reinvestment.
Broad support: Both sides of the aisle recognize the role of real estate in job creation and economic stability.
While nothing is guaranteed, the probability of some version of 100% bonus depreciation being reinstated—perhaps retroactively or as part of a future tax package—is becoming increasingly real.
How to Prepare for What’s Next
Even at 60%, cost segregation studies still deliver tremendous value. But now is the time to:
Assess your portfolio: Which assets could benefit from a study now?
Revisit past acquisitions: Studies can often be performed retroactively.
Get aligned with experts: Cost segregation requires engineering-based reports that stand up to IRS scrutiny. Partnering with the right firm is key.
Stay tuned: Watch tax policy developments carefully in the coming months. If bonus depreciation returns to 100%, timing will be everything.
Why This Matters to You
Whether you're an LP, GP, or just getting into the game, understanding cost segregation can change how you evaluate deals, structure exits, and preserve wealth.
This isn't about gaming the system. It's about understanding the rules of the game well enough to play it like a pro. And that means staying alert to opportunities that others may miss.
If 100% bonus depreciation comes back, it won't just be a technical update. It'll be a paradigm shift. And the winners will be those who are ready to act.
