1. What a cost segregation study does
A building normally depreciates over 27.5 years (residential) or 39 years (commercial). A cost segregation study breaks the purchase price apart and reclassifies components like flooring, cabinetry, dedicated electrical, and land improvements into 5, 7, and 15-year property, so a large slice of the basis depreciates on much shorter schedules.
On the federal return, that reclassified property also qualifies for bonus depreciation, which restores a 100% first-year write-off for qualifying property acquired and placed in service after January 19, 2025. States set their own rules, which is where Colorado comes in.
2. Colorado and federal bonus depreciation
Colorado starts with federal taxable income (C.R.S. 39-22-104 for individuals, 39-22-304 for corporations) and conforms to the IRC on a rolling basis, so the OBBBA's permanent 100% bonus depreciation for property acquired after January 19, 2025 flows through to the Colorado return automatically for both individuals and corporations. Colorado's addition statutes contain no 168(k) addback, and the August 2025 special session convened specifically to counter OBBBA revenue losses did not decouple from bonus depreciation. A 2026 bill (HB26-1222) would have required an addback of OBBBA-expanded 168(k) deductions beginning tax year 2027 with recovery over the property's pre-OBBBA schedule, but it was postponed indefinitely by Senate Finance on May 11, 2026 and did not become law. As of October 2026, 100% bonus is fully deductible on Colorado returns for 2025 and 2026.
Worked example
A $1,000,000 building, with and without a study
Illustrative only. A residential rental purchased for $1,000,000 of building basis (land excluded), acquired and placed in service after January 19, 2025.
Building basis
$1,000,000
Reclassified to 5, 7, and 15-year property (25%)
$250,000
Federal first-year deduction at 100% bonus
$250,000
Year 1 on that $250,000 without a study (27.5-year straight line)
about $9,100
Colorado conforms to federal bonus depreciation, so the state return mirrors the $250,000 first-year deduction.
Model your own numbers with the tax strategy projector.
3. Section 179 in Colorado
Full rolling conformity: Colorado allows whatever Section 179 expensing is claimed federally, including the OBBBA-increased cap (roughly $2.5M with a $4M phase-out threshold for 2025, inflation-indexed). No Colorado-specific limit or addback.
4. Does it still help in Colorado?
Yes, fully and 1:1 with federal: because Colorado takes federal taxable income with no depreciation modification, every dollar of 5/7/15-year reclassification and 100% bonus from a cost segregation study reduces Colorado taxable income at the flat 4.4% rate with no separate state depreciation schedule to track.
- •Colorado has never required a bonus depreciation addback in the modern era, unlike most decoupling states; there is no state depreciation schedule to maintain.
- •HB26-1222 (2026 session) would have added a 168(k) addback for tax years beginning on or after Jan 1, 2027 with recovery starting 2028 over periods reflecting pre-OBBBA treatment (excess carried forward up to 10 years); it died in Senate Finance 7-1 on May 11, 2026. Given OBBBA's estimated $1B+ hit to Colorado revenue, a future decoupling attempt is plausible and worth monitoring.
- •Colorado's August 2025 special session (HB25B-1001 through 1005) responded to OBBBA by making the QBI (Section 199A) addback permanent (HB25B-1001) and decoupling from FDDEI (HB25B-1002), but deliberately left bonus depreciation and Section 179 alone.
- •High-income real estate investors face a QBI addback: individuals with AGI over $500,000 (single) / $1,000,000 (joint), thresholds set by HB21-1311, must add back their entire federal 199A deduction, now permanent for 2026 and beyond under HB25B-1001; owners in SALT Parity Election entities add it back regardless of AGI. This does not affect depreciation itself but trims the pass-through benefit for larger investors.
- •Colorado conformity is rolling and, per 2023 guidance/legislation, includes retroactive federal changes, so the OBBBA's Jan 19, 2025 acquisition-date lookback applied cleanly to tax year 2025.
- •Flat income tax rate of 4.40% for 2025 and 2026 (a TABOR-triggered temporary 4.25% rate applied to tax year 2024 only), so the state-side value of a cost seg deduction is easy to quote: about $44 per $1,000 of first-year deduction.
5. The exit: recapture and timing
The accelerated deductions come back into view when you sell. Gain attributable to the 5, 7, and 15-year property is Section 1245 recapture, taxed at ordinary rates, and the straight-line depreciation on the building itself is unrecaptured Section 1250 gain, taxed at up to 25%. A study does not create that bill, it moves deductions forward, but the timing of the sale decides how much of the benefit you keep.
Two levers manage the exit. A 1031 exchange defers both flavors of recapture along with the rest of the gain, and simply holding the property lets the time value of the early deductions do its work; most owners want a 3 to 5 year horizon before a taxable sale for the math to stay comfortably positive. Model the exit before you commission the study, not after.