The IRS sets no minimum property value for cost segregation. IRS Pub 946 and the Cost Segregation Audit Techniques Guide govern how assets are classified, not how big the building must be. The real question is break-even economics: does the tax benefit beat the study fee by enough to justify the effort?
The break-even math
Start with depreciable basis, not purchase price. Subtract land, which is never depreciable under Pub 946. Residential rentals typically see 15% to 30% of the remaining basis reclassified into 5, 7, and 15-year property, and with 100% bonus depreciation permanent under IRC 168(k) for property acquired after January 19, 2025, the whole reclassified amount can deduct in year 1. Multiply by your marginal rate and compare that figure to the study quote, remembering that most of the benefit is deferral rather than permanent savings.
Two examples on either side of the line
A $280,000 single-family rental. Land runs $60,000, so basis is $220,000. A 20% reclassification is $44,000; with 100% bonus at a 24% bracket, the first-year federal benefit is about $10,560. If an engineering study costs a few thousand dollars, the ratio is thin for what is mostly a timing play, and it only works at all if the losses are currently usable. This is a marginal call, and often the right answer is to take ordinary MACRS depreciation and skip the study.
A $750,000 rental. Land of $150,000 leaves $600,000 of basis. A 25% reclassification is $150,000; at a 32% bracket the first-year benefit is roughly $48,000, which clears any reasonable study fee many times over.
What changes the answer
- Loss usability. Without real estate professional status, the short-term rental rules under Reg 1.469-1T(e)(3), or passive income, the loss suspends and the benefit arrives later, which weakens the case for a paid study today.
- Hold period. Selling within 2 to 3 years invites Section 1245 recapture that unwinds most of the timing benefit.
- Land allocation. A high-land-value market can push an otherwise large purchase below the economic line.
- State conformity. Several states decouple from bonus depreciation, trimming the combined benefit.
- Renovations. Recent improvement spend adds reclassifiable basis and can rescue a small property's math.
The cheap way to decide is to screen first. Amadae's cost segregation screen inside its savings playbook produces a screening estimate of the likely reclassification and first-year benefit from your purchase data. It is explicitly not an engineering study; it exists so you only pay for one when the numbers say it will pay you back. If the screen clears, Amadae coordinates with an engineering study firm and files the return that uses the result.