There is no minimum in the tax code. Not one dollar figure, anywhere. The threshold is economic, and it sits at roughly $500,000 of depreciable basis, which is not the same as purchase price. If you were told your $700,000 rental is too small, that was a rule of thumb that stopped being accurate in 2025.
The short answer
- No statutory minimum exists. The IRS sets no property value floor. The limit is whether the benefit exceeds the fee.
- The working threshold is about $500,000 of depreciable basis, meaning purchase price minus land.
- The old "$1 million minimum" is outdated. Permanent 100% bonus depreciation and lower study fees moved the line down.
- Property type matters as much as size. A $650,000 furnished short-term rental can outperform a $1,200,000 warehouse shell.
- Below roughly $350,000 of basis on a plain property the answer is usually no, and often no above that if you cannot use the deduction.
The Rule Is Economic, Not Legal
Cost segregation is the correct classification of assets under MACRS. There is no election, no threshold, and no form asking how much your building cost. A $200,000 duplex contains 5-year appliances and cabinetry the way a $20,000,000 hotel does.
What changes with size is arithmetic. A study has a floor cost, because someone still has to travel to the property, measure it, price the components, and write a defensible report. That floor is roughly $2,500 to $3,500, and below a certain basis the deduction cannot clear it.
Start With Depreciable Basis, Not Purchase Price
This is where owners misjudge their own situation, in both directions.
Land never depreciates and comes out first. In much of the country it runs 15% to 25% of a purchase price; in dense urban markets it can exceed 40%. A $900,000 coastal property might carry $400,000 of land, leaving $500,000 of basis. The same purchase in a Midwestern suburb might leave $740,000.
The allocation is not arbitrary. It can be supported by the purchase agreement, an appraisal, the assessor's ratio, or a site value analysis. Methods are compared in land allocation.
Why the "$1 Million Minimum" Died
That rule of thumb was reasonable in 2016. Three things changed it.
Bonus depreciation became permanent at 100%. The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% bonus depreciation permanently under §168(k) for property acquired and placed in service after January 19, 2025. At a 40% or 60% rate, a small property's reclassified assets trickled out over years. At 100%, the whole amount lands in year one.
Fees compressed. Better field tools and standardized takeoff workflows cut the hours needed on straightforward residential properties. Studies that once cost $8,000 now run $2,500 to $6,500. See what a study costs.
Short-term rentals changed who can use the deduction. A property averaging seven days or less per stay is not a rental activity under Treas. Reg. §1.469-1T(e)(3)(ii)(A). The owner needs material participation, not Real Estate Professional Status. That opened accelerated depreciation to owners of $500,000 to $900,000 properties with no other way to use the loss.
Break-Even by Basis Level
Assumes a residential property, a 32% combined rate, and full current-year use. The present value column discounts the deductions given up later, the honest way to view a deferral.
| Depreciable basis | Reclassification | Net present value | Fee | Net benefit |
|---|---|---|---|---|
| $250,000 (plain condo) | 12% | ~$5,800 | $2,800 | ~$3,000 |
| $400,000 | 15% | ~$11,500 | $3,200 | ~$8,300 |
| $500,000 | 20% | ~$19,200 | $3,800 | ~$15,400 |
| $750,000 | 22% | ~$31,700 | $4,500 | ~$27,200 |
| $1,000,000 | 25% | ~$48,000 | $5,500 | ~$42,500 |
Your result depends on your tax rate and whether you can use passive losses.
Read the last column as a ratio. At $250,000 of basis the net is real but thin. At $500,000 it is roughly 5:1 on the fee; at $1,000,000, closer to 9:1. That gradient, not a bright line, is what "$500,000" describes.
Small Properties That Genuinely Work
Example: a $780,000 short-term rental Land allocated at $130,000, leaving $650,000 of depreciable basis. A furnished mountain cabin: appliances, furnishings, cabinetry, window treatments, carpet and LVP, plus a gravel drive, decking, and site lighting. Reclassification of 28%. (The additional deduction nets out a simplified full year of 27.5-year depreciation on those dollars; MACRS applies the mid-month convention to the building, so the actual first year is smaller and depends on the month it was placed in service.)
| Asset class | Amount |
|---|---|
| 5-year personal property | $140,000 |
| 15-year land improvements | $42,000 |
| 27.5-year structure | $468,000 |
| Additional year-one deduction | ~$175,400 |
| Cash tax value at 32% | ~$56,100 |
| Study fee | ($4,000) |
The owner averages five-night stays and materially participates, so the loss is not passive. Your result depends on your tax rate and whether you can use passive losses. More in cost segregation for Airbnb owners.
A second case that works below $1,000,000 is the small owner-occupied professional office. A dental practice with $600,000 of basis carries operatory plumbing, dedicated circuits, sterilization casework, and a paved lot. Reclassification often lands between 30% and 40%, and the owner-operator is typically non-passive, so the deduction is usable now. That beats a $1,500,000 warehouse.
Small Properties That Don't Work
The $400,000 mid-rise condo. No land improvements, because you do not own the parking lot. Builder-grade finishes, no specialty electrical. Reclassification of 10% to 12% on $340,000 of basis is about $38,000 of accelerated cost. After a $3,000 fee, most owners should pass.
Any property where the loss suspends indefinitely. A W-2 earner with one long-term rental and no plan to sell is accelerating deductions into a carryforward account. Suspended losses free up on a fully taxable sale, but "someday" is worth much less than April.
A property you are selling within two years. The deferral window closes before the benefit compounds, and you convert future exposure into ordinary §1245 recapture.
If your property is marginal today, nothing is lost by waiting. A look-back study works on property placed in service in any prior year, caught up on Form 3115 with no amended returns, and the bonus percentage is fixed by the original placed-in-service date. See whether cost segregation is worth it and single-family rentals.
Frequently Asked Questions
Can I do a cost segregation study on a single-family rental?
Yes, and it is common now. The economics work best above roughly $500,000 of basis, on furnished or short-term rentals, and on properties with real site work such as driveways, decking, and fencing. A $300,000 basic rental in a low bracket is usually not worth an engineering fee.
Does the minimum apply to purchase price or depreciable basis?
Depreciable basis. Land is stripped out first, any personal-use portion is excluded, and capital improvements since purchase are added in. A $900,000 purchase can produce $500,000 to $780,000 of basis depending on the land allocation, which is why that allocation is the first question in any study.
Can I combine several small properties into one study?
Often yes, and it is one of the better ways past the fee floor. Providers frequently price portfolios at a reduced per-property fee because document handling and reporting are shared. Three $400,000 rentals studied together can produce economics none would justify alone.
Find Out in 24 Hours Whether a Study Pays for Itself
Not every property justifies a study, and we will tell you when yours doesn't. Send Precision Cost Segregation the address, purchase price, closing date, and your rough tax rate, and we will come back with a modeled reclassification range and an estimated first-year benefit at no cost.
This article is provided by Precision Cost Segregation for general educational purposes and does not constitute tax, legal, or accounting advice. Tax outcomes depend on your specific facts, your tax rate, your passive activity position, and your entity structure. Figures shown are illustrative. Consult your CPA or tax advisor before acting, and engage a qualified professional to perform any cost segregation study. Information is current as of publication.
This article is general information, not tax or legal advice. Depreciation outcomes depend on your facts, elections, and current law — consult your CPA before acting. © 2026 Precision Cost Segregation.