Five Essential Cost Segregation Updates for Tax Year 2024

As the EisnerAmper team prepares for tax planning season, we thought it would be helpful to highlight five cost segregation must-knows.  

With the passage of the One Big Beautiful Bill Act (OBBBA), there are several changes impacting cost segregation. Whether you’re planning renovations, acquisitions, or strategic exchanges, understanding these provisions will help you maximize deductions and improve cash flow.   

1. Bonus Depreciation Rates are at 60% and Falling 

Taxpayers are fortunate enough to be enjoying bonus rates under the TCJA, which took effect in 2018. This incentive has been a tremendous source of benefit and boosted the utility of the cost segregation study.  

Under the OBBBA, 100% bonus rate is back for assets acquired and placed in service after 1/19/2025. This is welcome news to real estate investors; however, it does have some limitations for application.  

For properties that were acquired prior to the 1/19/2025 date, they are still limited to the 40% bonus rate under TCJA. Additionally, properties that were under construction prior to the 1/19/2025 cutoff date are also still limited to TCJA bonus rates. 

2. Section 179 Federal Expensing Limits Increase Again for TY 2025: 

179D expensing limits have significantly increased as a result of OBBBA. 

• Overall expensing limitation has been increased to $2.5M 

• Phase-out threshold increase to $4M 

In contrast to bonus depreciation, certain assets not eligible for bonus depreciation are eligible for Section 179 expensing which allows for the immediate expense of 100% of all eligible asset cost. Despite bonus rates going back to 100%, given certain assets being eligible for Section 179 while not eligible for bonus depreciation, 179D expensing should still be considered in tax planning moving forward.  

Caveats: Section 179 expensing can only be taken on a trade or business, so it won’t apply to every real estate situation. Plus, the immediate benefit of Section 179 expensing is limited to taxable income and cannot be used to create losses. 

3. TPRs Create Significant Write-Offs in Renovation Scenarios 

The Tangible Property Regulations (TPRs) have not changed lately, with attention focused on newer legislation. However, with the declining rates of bonus depreciation, the TPRs are becoming more relevant and work very well in tandem with other tax strategies.  

In addition to guiding taxpayers through expense and capitalization decisions, the TPRs permit the immediate write-off of the remaining depreciable basis of a retired asset. This Partial Disposition Election (PAD) is a great long-term tax shield; however, it must be taken in the year in which the retired asset was taken out of service. 

4. Energy Incentives Make Easy and Profitable Cost Segregation “Add-Ons” 

The asset identification and quantification performed in a cost segregation study can tee taxpayers up for additional credits.     

• The Investment Tax Credit/Clean Energy Investment Tax Credit rewards taxpayers for installing renewable energy systems like solar panels.  If PWA requirements are met, tax liability can be reduced by 30% or more.   

• The EV Charging Station Credit incentivizes the installation of EV chargers, conferring up to a 30% decrease in tax liability.  The incentive cap of $100,000 was recently changed from “per location” to “per item,” meaning taxpayers can claim multiple items at the same location.    

To claim these credits, a taxpayer must have documentation that quantifies and assigns costs to all relevant assets (solar panels, inverters, wiring, EV chargers, pedestals, etc.) A cost segregation study is the most defensible way to obtain this information, and claiming these Credits is quite straightforward once a cost segregation study has been performed.  

Under the OBBBA many of the energy incentive programs have been given sunset dates that will end these programs in the upcoming years. 

• New Energy Efficient Home Credit (45L) – Repealed after 6/30/2026 

• Energy Efficient Commercial Buildings Deduction (179D) – Repealed after 6/30/2026 

• Investment Tax Credits (48E) - Repealed for wind and solar facilities either placed in service after 2027 or that begun construction more than 12 months after the law’s passage. 

• EV Charger Credits (30C) – Repealed after 6/30/2026 

5. 1031 Exchanges and 754 Step-Ups have Inherent Cost Segregation Potential 

The 754 step-up is notoriously complicated, and it’s easy to overlook the inherent cost seg potential while dealing with all the moving parts. However, it’s important to remember that the new basis and service date seen in a step-up may create an excellent cost seg opportunity.  

Similarly, changes in the TCJA have created a climate in which 1031 Exchanges and Cost Segregation are often employed simultaneously. Cost Segregation may, in fact, offset the potential tax liability generated by excluding personal property from a 1031 exchange.  

Start Tax Planning Now  

As tax planning season approaches, understanding the new rules is important to staying compliant and maximizing returns.  

Need help identifying opportunities? The EisnerAmper team is here to guide you through the complexities and help you maximize your tax benefits. Contact us today to schedule a consultation or learn more about how a cost segregation study can support your goals.