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 New York comes in.
2. New York and federal bonus depreciation
New York has decoupled from IRC 168(k) bonus depreciation for property placed in service on or after June 1, 2003, for both personal income tax and corporate franchise tax; the only exceptions are qualified Resurgence Zone and New York Liberty Zone property. Although New York is otherwise a rolling-conformity state, its statutory decoupling means the OBBBA's permanent 100% bonus (property acquired after Jan 19, 2025) does NOT flow through to New York returns. The 2025-2026 sessions did not re-couple; in fact the 2026-27 NYS budget (per TSB notice N-26-1, applicable to tax years beginning on or after Jan 1, 2025) extended decoupling to the new OBBBA IRC 168(n) qualified production property deduction and modified R&E expensing. Individuals and pass-through owners add back bonus on Form IT-398 (IT-225 addition A-209) and deduct regular depreciation instead; C corporations use Form CT-399 (CT-225 addition A-507 / subtraction S-507). New York City business taxes decouple the same way via Form NYC-399Z.
100% of the federal 168(k) deduction is added back in year 1 (Form IT-398 -> IT-225 code A-209; corporate CT-399 -> A-507). The taxpayer then subtracts New York depreciation computed under regular IRC 167/MACRS as if no bonus election had been made (subtraction S-213 each year over the asset's normal recovery life), with a catch-up adjustment in the year of sale or disposition (subtraction S-214) so total NY depreciation equals total federal over the asset's life.
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 New York return, the $250,000 federal bonus deduction is not allowed. 100% of the federal 168(k) deduction is added back in year 1 (Form IT-398 -> IT-225 code A-209; corporate CT-399 -> A-507). The taxpayer then subtracts New York depreciation computed under regular IRC 167/MACRS as if no bonus election had been made (subtraction S-213 each year over the asset's normal recovery life), with a catch-up adjustment in the year of sale or disposition (subtraction S-214) so total NY depreciation equals total federal over the asset's life.
Model your own numbers with the tax strategy projector.
3. Section 179 in New York
New York conforms to the federal Section 179 expensing limits with no state-specific dollar cap, so the OBBBA-increased $2.5 million limit / $4 million phase-out for 2025 applies on the NY return. One exception: taxpayers other than eligible farmers must add back the Section 179 deduction claimed for sport utility vehicles over 6,000 pounds GVW (IT-225 addition A-208), with a recapture subtraction at disposition (S-212). For real estate investors this means 179 expensing of qualifying items (equipment, roofs, HVAC, QIP on nonresidential property) generally works the same on the NY return as the federal one.
4. Does it still help in New York?
Yes. New York follows federal MACRS classifications and recovery periods; it only disallows the 168(k) bonus percentage. Reclassifying components out of 27.5/39-year real property into 5-, 7-, and 15-year MACRS lives still front-loads New York depreciation substantially (for example 200%-declining-balance over 5 years instead of straight-line over 39), so a cost segregation study retains real state-level value even though the year-1 100% bonus is federal-only.
- •New York has been decoupled from 168(k) continuously since 2003; the only bonus-eligible property on a NY return is qualified Resurgence Zone and New York Liberty Zone property (a post-9/11 legacy carve-out).
- •The NY add-back/subtraction mechanism is depreciation-neutral over the asset's life: you add back bonus, deduct regular MACRS yearly, and true up at disposition, so the state cost is timing, not permanent.
- •The 2026-27 NYS budget decoupled from the OBBBA's brand-new IRC 168(n) 100% deduction for qualified production property, effective for tax years beginning on or after Jan 1, 2025, and replaced OBBBA R&E expensing with 60-month amortization (TSB notice N-26-1), confirming NY's intent to stay decoupled from federal accelerated depreciation.
- •Section 179 conforms at full federal limits ($2.5M for 2025), but SUVs over 6,000 lbs get a 179 addback (code A-208) for individuals and pass-throughs unless the taxpayer is an eligible farmer; the heavy-SUV 179 play that works federally does not work in NY.
- •New York City's corporate and unincorporated business taxes decouple from bonus depreciation separately via Form NYC-399Z, so NYC-based landlords filing UBT adjust there too.
- •Pass-through owners handle the adjustments at the owner level: partnerships compute IT-398 amounts and pass addition A-209 / subtractions S-213, S-214 through to partners on IT-204-IP.
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.