Three to 5 years is the working rule of thumb, and every additional year improves the math. There is no statutory holding period; no section of the Code requires you to keep a cost-segregated property for any length of time. The number comes from economics: cost segregation moves deductions forward rather than creating them, and the profit is what the deferred tax earns before Section 1245 and Section 1250 recapture take their cut at sale.
Why time drives the benefit
Think of the first-year deduction as an interest-free loan from the Treasury that is partially called when you sell. A 1-year hold barely earns anything on the loan. A 5-year hold earns meaningful compound returns. A 10-year hold, or an exit that never triggers recapture, keeps nearly everything.
Worked example
An investor buys a $1,200,000 small apartment building in 2026. Land is $240,000, leaving $960,000 of depreciable basis. A study reclassifies 28%, about $270,000, into 5, 7, and 15-year property, fully deductible as 100% bonus depreciation under IRC 168(k) for property acquired after January 19, 2025. At a 35% rate, that defers $94,500 of federal tax. Invested at 8%, the deferral earns roughly $7,600 per year, about $44,000 compounded over 5 years. At sale, Section 1245 recapture claws back tax on the accelerated depreciation, but not the investment earnings, and by then the short-life components often carry a lower allocated value than at purchase, which shrinks the recapture itself. Held 2 years instead, the same deal earns about $15,000 before the study fee, a far weaker trade.
Exits that change the answer
- 1031 exchange. Like-kind exchanges under IRC 1031 defer gain and recapture together, so even a 2-year hold can work when the equity rolls into the next property.
- Hold until death. Heirs receive a stepped-up basis under IRC 1014, and the deferred recapture is never paid. For long-term family holds, the deferral is effectively permanent savings.
- Suspended losses. If your losses were suspended under IRC 469, a sale releases them under 469(g) and they offset the recapture, which makes early exits less punishing than the headline math suggests.
Caveats
A forced early sale does not create a penalty, it just shrinks the benefit, and in a bad case leaves you slightly behind after the study fee. Rising tax rates between deduction and sale also work against short holds, since you deduct at today's rate and recapture at tomorrow's. If your realistic plan is a quick flip with no 1031, run the numbers before commissioning anything. Amadae's cost segregation screen models benefit against intended hold period as part of its screening estimate, so the hold question is answered before any study fee is spent.