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 Iowa comes in.
2. Iowa and federal bonus depreciation
Iowa fully conforms to IRC 168(k) bonus depreciation for property placed in service in tax years beginning on or after January 1, 2021, for both individual and corporate income tax; no IA 4562A adjustment is required for post-2020 bonus property. Because Iowa has rolling conformity (Iowa Code 422.7 starts from federal taxable income, 2018 Iowa Acts ch. 1161, effective TY2020), the OBBBA's permanent 100% bonus for property acquired after January 19, 2025 flows through to Iowa returns automatically with no legislative action. The Iowa Legislative Services Agency's September 16, 2025 fiscal topic confirms OBBBA provisions integrate automatically and scores 168(k) conformity at roughly $132 million for TY2026, confirming the deduction is live on 2025-2026 Iowa returns. The only remaining bonus adjustments are legacy ones: assets placed in service in pre-2021 years when Iowa decoupled continue recovering previously disallowed bonus through IA 4562A/4562B until fully depreciated or disposed.
None for property placed in service in tax years beginning on or after 1/1/2021. Legacy pre-2021 assets: bonus was added back in the year claimed federally and is recovered as regular MACRS depreciation (computed without bonus) on Schedule IA 4562A, tracked cumulatively on IA 4562B, until the asset is fully depreciated or sold.
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
Iowa 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 Iowa
For tax years beginning on or after January 1, 2020, Iowa's Section 179 limit equals the federal limit for all taxpayers, so the OBBBA-increased federal cap (raised to $2.5M with a $4M phase-out for 2025, indexed) applies in full on the Iowa return. Historical caps matter only for old assets: $25,000 for years before 2018; $70,000 in 2018 (SF 220 extended the $70k limit to corporations, S corps, and financial institutions, which were originally held to $25k); $100,000 with a $400,000 phase-out in 2019. A special election let owners receiving pass-through 179 in excess of the Iowa cap in those years spread the excess; this is legacy-only now.
4. Does it still help in Iowa?
Yes, and in Iowa it works at full strength: because Iowa conforms to both 168(k) and MACRS, every dollar reclassified into 5-, 7-, or 15-year property by a cost segregation study is eligible for 100% bonus on the Iowa return, not just shorter state recovery lives.
- •Iowa decoupled from federal bonus depreciation for roughly two decades (2003 through tax years beginning before 1/1/2021); investors with pre-2021 assets still carry legacy IA 4562A/4562B recovery adjustments until those assets are fully depreciated or disposed.
- •Full 168(k) conformity started with tax years beginning on or after January 1, 2021; no Iowa adjustment is required for bonus taken on property placed in service after that date.
- •Rolling conformity began tax year 2020 under 2018 Iowa Acts chapter 1161 (SF 2417); Iowa Code 422.7 defines net income as federal taxable income with enumerated adjustments, so OBBBA's permanent 100% bonus integrated automatically with no 2025-2026 Iowa legislation needed.
- •The Iowa LSA (Sept 16, 2025 Fiscal Topic) expressly confirmed OBBBA provisions flow through via rolling conformity and estimated 168(k) conformity costs the state about $132 million for TY2026.
- •Section 179 history is a trap for amended/legacy returns: $25k pre-2018, $70k in 2018 (SF 220 retroactively unified corporations with individuals), $100k with a $400k phase-out in 2019, full federal conformity from 2020 on.
- •Iowa follows federal MACRS recovery periods (5/7/15/27.5/39-year) outright because the return starts from federal taxable income; even during the decoupled years the IA 4562A recomputation used regular MACRS, just without bonus.
- •Iowa moved to a flat 3.8% individual income tax rate in 2025 (corporate rate on a glide path toward 5.5%), so the state-side dollar benefit of a cost seg study is real but small relative to federal savings.
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.