Cost Segregation in Pennsylvania

If you own income-producing property in Pennsylvania and you are depreciating the entire building over 39 years, a cost segregation study checks whether parts of it belong in shorter lives than that 39-year bucket. Under current law, the parts that do can generally be deducted in year one.

What a study actually does

A building is not one asset. The tax code treats it as one by default, but an engineer looking at the same building sees dozens of components with different useful lives. Carpet and removable flooring, decorative lighting, cabinets and millwork, appliances, and the electrical and plumbing that serves specific equipment belong in a 5-year life. Furniture and certain fixtures belong in 7. Land improvements, meaning parking lots, sidewalks, landscaping, fencing and site lighting, belong in 15. The structural shell and the general building systems stay at 39.

Our study documents that split with engineering support. The IRS lost Hospital Corporation of America v. Commissioner in 1997, and the IRS publishes an Audit Techniques Guide describing how these studies are done.

Why the timing matters right now

The One Big Beautiful Bill Act, signed in July 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Bonus depreciation applies to property with a recovery period of 20 years or less. That is exactly the 5, 7 and 15-year buckets our study creates. The 39-year shell receives none of it. Without a study there is nothing for the bonus rate to apply to, which is the whole argument for running one now.

What the numbers actually look like

Most firms in this industry quote 30% or 40% of basis. Here is what four commercial benchmark runs produced:

First-year deductions came in between 16.1% and 21.4% of building basis. We model against that band rather than the industry's marketing numbers, because we guarantee a minimum in first-year deductions against the estimate we give you, so an inflated estimate is a problem we would own rather than a sale we would win.

Pennsylvania counties we cover

We do not treat Pennsylvania as one market. Land is a very different share of total value in Center City than it is in Upper Bucks, and that share determines how much of your purchase price is even eligible for reclassification. We track submarket-level rent, capitalization rate and vacancy indicators for each county we work, and we use them to check the building-to-land split on your parcel before we model anything.

A note specific to Pennsylvania

Pennsylvania state treatment of depreciation does not always mirror the federal rules, so the state effect of a study is not automatically identical to the federal effect. The federal deduction is the headline, and this is not a reason to skip a study. It is a reason to plan one properly and to have your CPA confirm the Pennsylvania treatment before filing.

First, can you actually use the deduction this year?

This is the question most firms skip, and skipping it is how owners end up paying for a study before they know whether they can use the deduction in the current year. A cost segregation study creates a large paper loss. Whether that loss offsets your other income this year depends on you, not on your building.

You can generally use it against active income now if you materially participate in a short-term rental (average guest stay of seven days or less, and you run it yourself rather than handing it to a property manager), if you hold Real Estate Professional status, or if you have passive income to offset. If you own a long-term rental, use a property manager, and have no passive income, the loss is still real but it suspends and releases later, usually on sale. That is a deferral.

We screen for this before we quote. If the test for using the loss this year is not met, we will say so before you pay anything.

Why owners pick Basis

Most cost segregation firms sell one kind of study, so that is the one they recommend. We sell two, both engineered, and we will tell you which one your building needs.

• Two tiers, and the building decides. The budget tier is a remote study by our engineering team, built from your photos and documents with no site visit, for simpler properties at the lower fee. Bigger or more complex buildings get the full tier, which adds individualized engineering review. Either way, a 70-plus page report and audit support come with it.
• A minimum ROI, in writing, or it is free. Our study identifies at least 20x its fee in first-year deductions on commercial property, or at least 30x on a short-term rental, or you do not pay for it.
• Your number before you pay anything. Property-specific, modeled from real parcel data, not a slider on a calculator.
• We will tell you no. If the test for using the deduction this year is not met, we say so before we quote you, not after you have paid.

Read the full comparison, including where the big national firms beat us »

Frequently asked questions

Does cost segregation work in Pennsylvania?

Yes. Cost segregation accelerates depreciation under Section 168 of the Internal Revenue Code, which is federal law, so a Pennsylvania property is treated exactly like a property in any other state. What is local is the property data, the submarket, and who you work with.

Does Pennsylvania follow federal bonus depreciation?

Not automatically. Pennsylvania state treatment of depreciation can differ from the federal rules, so the effect on your state return is not necessarily the same as the effect on your federal return. The federal deduction is the headline, but your CPA should confirm the Pennsylvania treatment before you file.

What does a cost segregation study cost in Pennsylvania?

Our prices are published, so you can see them without a sales call. We price off what you paid for the property. Residential and short-term rental studies run from $1,295 on the budget tier, and the full tier opens at $5,295 once the purchase price reaches $1.5 million. On commercial, the budget tier starts at $3,295, and the full tier begins at $12,095 with a $2.15 million purchase. Above $4 million residential or $10 million commercial, we price by proposal. Medical, restaurant, hospitality and other specialty property is full tier only, from $12,095, quoted by property. Every quote is then capped by the guarantee: our fee can never exceed one twentieth of your estimated first-year deductions on commercial, or one thirtieth on a short-term rental, and you see your estimate before you commit.

How much does a study typically find?

On four commercial benchmark runs, first-year deductions ran between 16.1% and 21.4% of building basis. The one delivered short-term rental study we publish ran 135 to 1, on a much smaller fee. These are deductions, not cash. Which year you can use them is a question for your CPA.

What if I bought the building several years ago?

A Form 3115 change in accounting method is how depreciation missed in prior years gets caught up. The catch-up goes in as a single deduction in the year of the change, without amending earlier returns.

Who actually performs the study?

Our engineering team, on both tiers. If an examiner questions our study, the same team answers your tax professional's written technical questions at no charge, and that audit support comes with either tier. Your own tax professional represents you before the IRS.

Sources

» Internal Revenue Code Section 168(k), additional first-year depreciation
» IRS Cost Segregation Audit Techniques Guide (Publication 5653)
» IRS Publication 946, How To Depreciate Property
» Treasury Regulation §1.168(i)-8
» IRS Form 3115, Application for Change in Accounting Method
» Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)
» Submarket rent, capitalization rate, and vacancy figures compiled by the Basis property data engine from CBRE, Cushman & Wakefield, Newmark, and Colliers market reports. See Sources & Citations.