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Year-1 depreciation after a cost-segregation split

The worked example puts $52,533.33 of depreciation in year 1. That is $47,200 more than leaving the same depreciable basis on a 27.5-year life.

Basis

Cost basis ($)

Land share (%)

Publication 527 does not publish a land percentage. Land is not depreciated.

Short-life share of depreciable basis (%)

Your cost-segregation allocation. No IRS percentage is filled in.

Dates and bonus

Acquired date

Placed-in-service month

Placed-in-service year

Bonus percent

Starts at 100 for property acquired after January 19, 2025. Publication 946 (2025) and Notice 2026-11. Type 40 to use the elective allowance for the first tax year ending after that date.

Recovery

Short-life recovery years

Starts at 5. Publication 527, 5-year property such as appliances and carpet.

Short-life year-1 percent

Starts at 20. Publication 527 Table 2-2a, 5-year property, half-year convention, year 1.

Building recovery years

Starts at 27.5. Publication 527, residential rental property, straight line.

Building first-year fraction

Leave blank to use (12.5 - month) / 12, the mid-month convention in Publication 527.

Apply the bonus percent even if short-life years are over 20

Publication 946 limits the special allowance to MACRS property with a recovery period of 20 years or less. The cap starts at 20 in the data file.

How it works

Land is cost basis times the land share. That amount is not depreciated.
Depreciable basis is cost basis minus land. The short-life slice is that basis times the short-life share. The building slice is what remains.
Bonus is the short-life slice times the bonus percent, when short-life recovery years are at or under 20, or when you check the box.
Short-life year 1 is the short-life basis left after bonus, times the year-1 percent.
Building year 1 is the building slice times the mid-month fraction, divided by the building recovery years.
The comparison line keeps the full depreciable basis on those same building recovery years and the same fraction.

Source: IRS Publication 527 (2025), https://www.irs.gov/publications/p527, and Publication 946 (2025) plus Notice 2026-11, retrieved 2026-10-09, https://www.irs.gov/publications/p946.

Worked example

Cost basis $400,000. Land share 20%, so land is $80,000 and depreciable basis is $320,000. Short-life share 15%, so the short-life slice is $48,000 and the building slice is $272,000. Acquired February 1, 2026 and placed in service in July 2026, so the bonus field is 100. Bonus is $48,000 and nothing is left for the 20% year-1 rate. July mid-month fraction is 5.5 / 12. Building year 1 is $4,533.33. Year 1 total is $52,533.33. Straight line on $320,000 is $5,333.33. The gap is $47,200.

Same split with the bonus field at 40 (the 2025 phase-down percent for property acquired before January 20, 2025) gives bonus $19,200, short-life year 1 of $5,760, and year 1 of $29,493.33.

Frequently asked questions

What is included in year-1 depreciation?

Year-1 depreciation is the bonus amount on the short-life slice, plus the year-1 rate you enter on the short-life basis left after bonus, plus mid-month depreciation on the building slice. Land is subtracted first and is not depreciated.

Where does the starting bonus percent come from?

If the acquired date is after January 19, 2025, the field starts at 100. Publication 946 (2025) and Notice 2026-11 describe that 100 percent allowance, and an election to use 40 percent in the first tax year ending after January 19, 2025. If the property was acquired after September 27, 2017 and on or before January 19, 2025, the field starts from the 20-point phase-down in Notice 2026-11, including 40 percent for 2025. You can type a different percent.

Does the 27.5-year building get bonus depreciation?

The bonus percent applies to the short-life slice when the recovery years you enter are 20 or fewer. Publication 946 describes qualified property as MACRS property with a recovery period of 20 years or less. The building line uses the recovery years you enter, starting at 27.5.

Is the land percent an IRS percentage?

No published IRS land percentage is filled in. Publication 527 says land is not depreciated and shows a contract split of $25,000 land and $160,000 building on a $185,000 house. Type the land share from your own price.