Cost Segregation for New Construction
Just built it? A new construction study works from what the project already produced: the pay applications, the schedules of values and the change orders. This page says what the record gives a study, how the trades are classified, prints the rules from their sources, and points to the logistics center sample built the same way.
What the Construction Record Gives a Study
Just built it? We work from what the project already produced: the pay applications, the schedules of values and the change orders. We classify the job trade by trade, down to the subcontractor line where the detail exists.
- Built from your AIA G702 and G703 pay applications and schedules of values
- Subcontractor detail reconciled to each trade line, to the cent
- General conditions, insurance and contractor fee allocated across the trades
Where a line of the schedule of values carries subcontractor detail, the study classifies to that line; where it does not, the study says so.
Land, Site Work and the Placed in Service Date
What stays in land and when depreciation begins, from the regulation and the IRS publication.
- Depreciation begins when property is placed in service, which for a rental means when it is ready and available for rent, even if no tenant has moved in yet. Source: Treas. Reg. section 1.167(a)-10(b); IRS Publication 527 (2025), chapter 2, Placed in Service
- Land cannot be depreciated. The costs of clearing, grading, planting and landscaping are usually part of the cost of land. Source: Treas. Reg. section 1.167(a)-2; IRS Publication 527 (2025), chapter 2, What Rental Property Can't Be Depreciated
How the Trades Are Classified
The classes a trade line can land in and the method each class uses, from the Code and the revenue procedure.
- Under the general rule in section 168(e), property is 5 year property if its class life is more than 4 but less than 10 years, 7 year property if its class life is 10 or more but less than 16 years, and 15 year property if its class life is 20 or more but less than 25 years. The Code puts some property in a class by name, and property with no class life that is not otherwise classified is 7 year property. Source: IRC section 168(e)(1) and (e)(3)(C)(v)
- Land improvements fall in asset class 00.3 of Rev. Proc. 87-56, with a 20 year class life and a 15 year recovery period under the general depreciation system. Examples are sidewalks, roads, drainage facilities, fences and landscaping shrubbery. The class does not include buildings and structural components, or land improvements that another asset class explicitly includes, so a class for the business activity can set a different recovery period. IRS Publication 946, Appendix B lists the class in Table B-1. Source: IRS Publication 946 (2025), Appendix B, Table B-1; Rev. Proc. 87-56, 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22), asset class 00.3; IRS Publication 5653 (Rev. 2-2025), chapter 2, part L, paragraph (5); Rev. Rul. 2001-60
- Buildings (residential rental property and nonresidential real property) and qualified improvement property use the straight line method. Property in the 3, 5, 7 and 10 year classes generally uses the 200 percent declining balance method, switching to straight line when that gives a larger allowance. Property in the 15 year and 20 year classes, other than qualified improvement property, generally uses the 150 percent declining balance method. Source: IRC section 168(b)(1), (2) and (3)
Bonus Depreciation on a New Building
Which components can take the allowance and that it applies unless the taxpayer elects out; the rates and dates are in the bonus depreciation guide.
- Bonus depreciation can apply to property that has a recovery period of 20 years or less, as long as the property also meets the other tests, such as the original use or used property rule. That covers the 5 year, 7 year and 15 year components a cost segregation study identifies. It does not cover the 27.5 year or 39 year building itself. Source: IRC section 168(k)(2)(A)(i)(I)
- Bonus depreciation is the default. The 100 percent allowance applies to qualified property acquired and placed in service after January 19, 2025 unless the taxpayer elects out for a class of property. For the first tax year ending after January 19, 2025 only, the taxpayer may instead elect a reduced 40 percent rate (60 percent for long production period property and certain aircraft). Source: IRC section 168(k)(1), (k)(7) and (k)(10); IRS Publication 946 (2025), chapter 3
An Example From Our Engine
An invented distribution center, computed by the estimate engine with the total project cost in place of a purchase price and the land purchase carved out first. A new construction study itself works line by line from the schedule of values, as the sample shows; this example only illustrates the class split.
| Land value | $300,000 |
|---|---|
| Building basis | $1,700,000 |
| Moved to the 5 year class | $198,687 |
| Moved to the 15 year class | $175,313 |
| Left on the 39 year life | $1,326,000 |
| Share of the building basis moved | 22% |
| First year depreciation without a study | $43,590 |
| First year depreciation with a study | $408,000 |
| Additional first year deduction | $364,410 |
| Conservative | Middle of the Road | Aggressive |
|---|---|---|
| $292,051 | $408,000 | $540,513 |
Illustrative example computed by our estimate engine for an invented Distribution Center at 1 Fixture Park, Testville, ZZ 00000: total project cost $2,000,000, $300,000 paid for the land (15.0%), placed in service January 1, 2026, at the Middle of the Road position with 100% bonus. Results vary with property specifics and your tax situation.
Less to land means more to depreciate, so a low land value is the aggressive land position.
The ZZ 00000 marker means invented: these figures are an illustration for the inputs shown, not a result for any real property.
Questions people ask
What if the project is still finishing?
- The study is prepared from the final pay applications and the schedule of values. You can start the wizard and upload what exists, and finish when the record is complete.
Is new construction a flat fee study?
- No. New construction studies are Extended / Custom: you tell us about the project and we price the study before you commit, and nothing is billed today.
Do you need the drawings?
- Plans help when they exist; the pay applications, the schedules of values and the change orders carry the figures the study classifies.
The rules on this page were checked against their sources on October 1, 2026.
Ready when you are.
The wizard asks the questions for your property and routes it to the right lane.