The five cost segregation questions I answer every week

I spend most of my week on the phone with people who own one or two properties and a tax bill they did not plan for. The questions repeat. Not because people are unoriginal, but because nobody has answered them plainly. So here are the five I answered this week, in the order they usually arrive.

How do I know how much deduction a house can provide?

Usually somewhere between 10 and 40 percent of the purchase price in the first year, with 100 percent bonus depreciation in place under §168(k).

That is a wide range, and people want me to narrow it before I have seen the house. I cannot. The number is not an average applied to your property. It is a set of facts about your property.

Land is the biggest driver. Land never depreciates. It sits there being worth money and the code does not care. So if you bought where land is expensive, beachfront, most of the west coast, much of the Northeast, a large share of what you paid is parked in an asset that will never produce a deduction. Two houses at the same price, one in Sea Ranch and one in the Smokies, do not produce the same study.

After land it is what the house is made of and what is around it. A pool, a long driveway, a deck, landscaping, a detached studio, cabinetry, flooring, appliances. If two bedrooms are the same square footage but one has hardwood and one has vinyl, they get different values, because they are different assets. That is the whole reason we rebuild the house before we estimate it.

Worth saying plainly. This is a deduction, not a refund. It reduces the income you are taxed on. What it is actually worth to you is the next question.

What impact should I expect from doing this?

It depends on the tax bill you are trying to reduce, so start there, not with the house.

Take your pay stub or last return and find what you actually owe. A married couple filing jointly with $500,000 of wage income in 2026 takes the $32,200 standard deduction, lands at $467,800 of taxable income, and owes roughly $102,600 in federal income tax. That couple is an illustration, not a client, but the arithmetic is the published 2026 brackets, ordinary income only, before state.

Now work backwards. To generate a $102,000 first year deduction you are looking at a house somewhere around $425,000 to $500,000, assuming that house lands in the middle of the range above. Your accountant can sharpen it against your actual return. The point is that the house gets sized to the bill, not the other way around.

The bill does not have to come from wages. A property sale, a stock sale, a vested grant, they all arrive in the same place.

One number moved this year and it is worth knowing. There is a cap under §461(l) on how much business loss can offset income that is not business income. For 2026 the IRS set it at $512,000 for a married couple filing jointly and $256,000 for a single filer (Revenue Procedure 2025-32, section 4.31), down from $626,000 and $313,000 in 2025, because the One Big Beautiful Bill Act made the limit permanent and re-based the amount it indexes from. If a study produces more loss than the cap, the excess is not lost. It carries forward as a net operating loss. But if you were planning around last year’s figure, plan again.

Do I depreciate the furniture and the Vitamix?

No, and you do not need a study to handle them.

Furniture, linens, the blender, the coffee maker, the small operating appliances you bought to make the place hostable are your own purchases with your own receipts. They go on your books directly. A cost segregation study exists to separate the assets that came with the building, the ones nobody ever wrote you a receipt for. Your sofa is not one of those.

Where we do help is when the receipts are gone. You furnished the place two years ago, you know you spent something in the twenty thousands, and your CPA needs that number itemized and defensible rather than one line that says furniture. That is a reconstruction problem, and reconstruction is the thing we are built to do.

Do I have to be a real estate professional, or the plumber?

No to both.

The two doors people confuse. Real estate professional status is 750 hours plus more than half of everything you work. Material participation on a short term rental is more than 100 hours, and more than any other single person involved.

Real estate professional status under §469(c)(7) asks for 750 hours a year in real property trades or businesses, and more than half of all the hours you work anywhere. If you are a physician, an engineer, or a lawyer with a real job, it is that second half that ends it. You are not finding another fifteen hours a week for real estate on top of a career.

Short term rentals have a different path. When the average guest stay is seven days or less, the activity is not treated as a rental for the passive loss rules, which means you get tested on material participation the way any other business would be. The test most people meet is the plain one. More than 100 hours in the year, and at least as many hours as any other single person involved. You are compared to each person separately, your cleaner, your handyman, your manager, and not to all of them added together. Your spouse’s hours count toward yours whether or not your spouse owns any of it.

Here is the part that surprises people. Coordinating is participating. You found the plumber. You agreed the price. You arranged access. You checked the job was done. That is your time and it counts. Add the turnover schedule, the ten o’clock guest messages, the pricing, the reviews, the Costco run for supplies. When I ran mine it came to about two hours a week. A hundred hours a year is twenty minutes a day, or one long weekend if you would rather do it in a block. A lot of it happens anyway, on the visits, while you are standing in the house.

And only the first year has to look like this. After that you can hand the day to day to a property manager and keep the ongoing depreciation.

The caveats are real. The hours have to be real, and you have to write them down as you go rather than reconstruct them in April. State treatment varies. Year two is a much smaller number than year one. There is recapture when you sell.

Can we make the deduction bigger?

No, and I would be careful with anyone who tells you yes.

The house has a certain roof. It has a certain driveway. It has the cabinets it has. There is no version of this work where the correct answer moves because someone asked for a better one.

Gray areas do exist and I will not pretend otherwise. Cabinetry is a real one. An IKEA box and a custom built in are not the same asset, and reasonable people argue about where a given kitchen lands. But that is an argument about the actual cabinets in the actual house, settled by looking at them. It is not a dial.

Asset depreciation names the thing you own. That is the entire discipline. If a provider’s answer to a bigger number is a bigger number, they have stopped naming things and started guessing, and you are the one who signs the return. If you want to see what naming things looks like on paper, we publish what a study actually contains.

The part underneath all five

None of this is a special case and none of it is aggressive. Congress wrote §168(k) to move money into buildings and into the economies around them, and my cleaner, my handyman, my landscaper, and the woman who sweeps my chimney are the evidence that it worked as intended. Most CPAs do not run this for their clients, and that is a specialty gap rather than a failing. Filing what you hand them, correctly, is a different job than identifying this and structuring it.

The goal is not to get away with something. The goal is to be accurate, explainable, and repeatable, so the number on the return is the number the house actually supports.

If you are a CPA, we will do the engineering underneath your judgment. If you own the house and you are trying to work out whether any of this applies to you, come tell us about it at unlevered.io/hello. We answer these five all week anyway.