California property depreciation
What a cost segregation study is really worth here
100% bonus depreciation is permanent again federally, which is why your inbox is full of cost segregation pitches. California has never allowed a cent of bonus depreciation and caps §179 at $25,000 against the federal $2,560,000. The headline number in those pitches is a federal-only number.
The property
Land is never depreciable and comes off the top.
The building shell uses the mid-month convention, so a January placement gets most of a year and a December one gets half a month. Bonus depreciation is not prorated by month.
100% bonus applies only to property acquired after that date, and a written binding contract signed before January 20, 2025 disqualifies it.
On these numbers
The study saves you $143,510 in year one
$134,974 federal and $8,536 California, against a $12,000 study fee - a net $131,510 and 12.0 times the cost of the study.
2026 federal rates; California personal tax uses the 2025 rate schedules, because the FTB has not published 2026 brackets yet.
Extra deduction, federal
$752,410
100% bonus writes off the whole 5, 7 and 15-year allocation at once
Extra deduction, California
$86,588
California has never adopted §168(k). You get the shorter class lives, not the write-off.
Year-one tax saved
$143,510
Federal and California combined
Net of the study fee
$131,510
12.0x the cost of the study
Federal-to-CA basis gap
$665,822
Tracked on FTB 3885 for the life of the property
Federal, year one
California, year one
What decides this
- California allows no bonus depreciation at all, so of the $752,410 of extra first-year deduction the study buys you federally, California gives you $86,588. The headline number a cost segregation firm quotes is a federal-only number.
- This creates a $665,822 federal-to-California basis difference in year one alone. You carry that difference on Form FTB 3885 for the life of the property, and it has to be tracked correctly on every future return and on sale.
- Treat this as timing rather than a permanent saving. On a straight sale the reclassified personal property is recaptured under §1245 at ordinary rates and the building's depreciation comes back as unrecaptured §1250 gain at 25%. How much actually comes back depends on the asset class, the sale structure, how long you hold and what you do next: a §1031 exchange defers it, and a step-up at death can wipe it out entirely. Those paths are not modeled here.
- The study costs $12,000 and returns $143,509 of first-year tax, 12.0 times its fee. Below roughly $500,000 of depreciable basis that ratio usually stops working.
Worth commissioning a study?
A study is a timing decision, not a permanent saving, and it is worth most to an owner who will hold the property, exchange it, or die with it. It is worth least to someone selling in a few years, who pays it all back as recapture.
Book a planning callEvery figure verified September 1, 2026 against §168(k) as amended by the One Big Beautiful Bill Act, Rev. Proc. 2025-32, and the FTB instructions for Form 3885. General information, not tax advice.