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 District of Columbia comes in.
2. District of Columbia and federal bonus depreciation
DC has decoupled from IRC 168(k) bonus depreciation continuously since the original 2002 Bonus Depreciation De-Coupling Act. DC Code 47-1803.03(a)(7) (franchise taxes) and (b-3)(2)(A) (individuals) state flatly that no deduction is allowed for the special depreciation allowance under section 168(k), so OBBBA's permanent 100% bonus does not flow through despite DC's otherwise rolling conformity. In November-December 2025 the DC Council passed OBBBA decoupling legislation (also hitting 168(n) qualified production property, 174A R&E expensing, and the 163(j) changes); Congress nullified that act via H.J.Res.142, signed February 2026, but the nullification targeted the new OBBBA-specific decouples (163(j), 168(n), 174/174A) and does not restore bonus depreciation, because the longstanding 168(k) disallowance predates OBBBA and was never part of the nullified act. The official 2025 D-30 instructions (published Feb 23, 2026, after the repeal) still direct taxpayers not to claim 168(k) or 168(n) depreciation, and the DC Attorney General's position is that tax year 2025 remains decoupled in any event.
Year 1: add back (do not claim) the full federal bonus amount on the DC return (franchise returns recompute Form 4562 depreciation without bonus; individuals add it back via the DC addition modification, historically Calculation B). Recovery: in each later year DC allows regular MACRS depreciation computed on a basis NOT reduced by bonus, so the disallowed amount comes back over the asset's normal recovery life (5/7/15/27.5/39 years), with a corresponding basis/gain adjustment on sale (recompute Form 4797/Schedule D gain without the federal bonus).
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
On the District of Columbia return, the $250,000 federal bonus deduction is not allowed. Year 1: add back (do not claim) the full federal bonus amount on the DC return (franchise returns recompute Form 4562 depreciation without bonus; individuals add it back via the DC addition modification, historically Calculation B). Recovery: in each later year DC allows regular MACRS depreciation computed on a basis NOT reduced by bonus, so the disallowed amount comes back over the asset's normal recovery life (5/7/15/27.5/39 years), with a corresponding basis/gain adjustment on sale (recompute Form 4797/Schedule D gain without the federal bonus).
Model your own numbers with the tax strategy projector.
3. Section 179 in District of Columbia
District of Columbia Section 179 cap: $25,000 ($40,000 for a certified Qualified High Technology Company); DC also effectively retains the old $200,000 investment phase-out concept tied to the pre-2003 federal rules.
DC Code 47-1803.03(a)(18) and (b-3)(2)(B) cap the Section 179 deduction at the lesser of $25,000 or actual cost. Any federal 179 expense above $25,000 must be backed out on the DC return (D-20, D-30, and the individual addback). OBBBA's $2.5M federal cap is irrelevant for DC; the excess is instead depreciated for DC purposes under regular MACRS.
4. Does it still help in District of Columbia?
Yes. DC follows regular federal MACRS recovery periods and methods (it only strips out 168(k)/168(n) bonus and the extra 179), so a cost seg study that reclassifies components from 27.5/39-year real property into 5-, 7-, and 15-year classes still accelerates DC deductions materially, just via 200%/150% declining-balance MACRS rather than a 100% year-one write-off.
- •DC is one of the few rolling-conformity jurisdictions that has disallowed bonus depreciation in every form since 2002: 30%, 50%, 100%, and now OBBBA's permanent 100% are all barred by DC Code 47-1803.03; some generic conformity tables (including Tax Foundation's OBBBA state-impact piece) show DC as conforming via rolling conformity, which is wrong on 168(k) because of the explicit statutory override.
- •Unique federal-oversight twist: Congress used its DC Home Rule review power (H.J.Res.142 / S.J.Res.102, passed Feb 4 and Feb 12, 2026, signed by the President) to nullify DC's 2025 OBBBA Decoupling Act, the first such nullification used on a DC tax bill in years; the DC Attorney General maintains tax year 2025 stays decoupled, and the longstanding 168(k)/179 decoupling was untouched either way.
- •DC also decouples from IRC 168(n) (OBBBA's 100% expensing for qualified production property) per the 2025 D-30 instructions, relevant to anyone building manufacturing/production real estate.
- •Rental real estate in DC is usually taxed at the activity level: rentals of DC real property with gross income over $12,000 must file Form D-30 (Unincorporated Business Franchise Tax, 8.25%, minimum tax $250, or $1,000 if DC gross receipts exceed $1M), and the bonus/179 addbacks apply on that return; DC residents then subtract D-30-taxed income on the D-40 to avoid double taxation.
- •On sale of property, DC requires recomputing federal Form 4797/Schedule D gain without the bonus depreciation ever having been taken (DC basis is higher), so DC-side depreciation recapture is smaller than federal.
- •Qualified High Technology Companies get a slightly higher $40,000 Section 179 cap, the only DC-specific expansion.
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.