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 Mississippi comes in.
2. Mississippi and federal bonus depreciation
Mississippi allows permanent 100% first-year expensing for qualified property and qualified improvement property under Miss. Code 27-7-17(1)(f)(ii)(2), enacted by HB 1733 (March 2023), retroactive to tax years beginning after December 31, 2022. Critically, the deduction is locked in by state statute 'notwithstanding any changes to the federal Internal Revenue Code related to cost recovery,' so Mississippi never phased down with federal bonus in 2023-2024 and did not need to conform to OBBBA's restoration of 100% bonus in July 2025: the state was already at 100% and stays there regardless of what Congress does. Taxpayers may alternatively elect to depreciate under the regular IRC Section 168 schedules on an asset-by-asset, year-by-year election made by the return due date. The same treatment applies to individual and corporate income tax; nothing in the 2025-2026 sessions changed it (the 2025 session's HB 1 addressed rates, not depreciation).
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
Mississippi 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 Mississippi
Miss. Code 27-7-17(1)(f)(ii)(3) (also added by HB 1733) states Mississippi's Section 179 treatment 'shall conform to the provisions of 26 USCS Section 179 in effect for that year' -- rolling conformity. That means the OBBBA-expanded federal limits ($2.5M deduction cap, $4M phaseout threshold for property placed in service after Dec 31, 2024, indexed) flow straight through to the Mississippi return.
4. Does it still help in Mississippi?
Yes, and better than almost anywhere: in Mississippi the reclassified 5/7/15-year buckets get 100% first-year expensing on the state return by permanent state law, so the state deduction mirrors the federal one dollar for dollar; the remaining 27.5/39-year building basis follows the regular IRC Section 168 (MACRS) schedules, which Mississippi recognizes.
- •Mississippi was historically an addback state that allowed NO bonus depreciation at all (except a carve-out for aviation property), then flipped in one move: HB 1733 (2023) passed without a single dissenting vote and made it only the second state (after Oklahoma) with permanent full expensing.
- •Because the 100% deduction is freestanding state law, Mississippi skipped the federal 80%/60% bonus phase-down entirely in 2023-2024 -- state-side expensing was actually MORE generous than federal in those years, a position almost no other state was in.
- •The expensing election is flexible: a taxpayer may take 100% expensing, or elect regular IRC Section 168 depreciation instead, for any tax year, as long as the election is made by the return filing deadline -- useful for investors who want to smooth income in low-rate years.
- •HB 1733 also allows immediate expensing of IRC Section 174 R&E expenditures notwithstanding the federal 5-year amortization that applied 2022-2024.
- •The statute covers 168(k)-style qualified property and qualified improvement property; OBBBA's new Section 168(n) qualified production property (100% expensing of certain manufacturing real estate) is a separate federal provision Mississippi's statute does not expressly reference, so QPP conformity is currently unclear.
- •The savings shrink on a schedule: HB 1 (signed March 2025) cuts the flat individual rate from 4.4% (2025) to 4.0% (2026), 3.75% (2027), 3.5% (2028), 3.25% (2029), 3.0% (2030), with revenue-trigger reductions aimed at full elimination afterward -- so a big 2026 state deduction offsets income taxed at 4.0%, and deferral pushes income into lower-rate future years, which actually improves the arbitrage.
- •First $10,000 of taxable income is taxed at 0%; the flat rate applies above that.
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.