With the Federal Tax Deadline Approaching, Businesses Can Save on Their Taxes with Cost Segregation

O'Connor discusses how with the federal tax deadline approaching, businesses can save on their taxes with cost segregation.

HOUSTON, TX, UNITED STATES, March 25, 2026 /EINPresswire.com/ --


While Texas has a reputation as a business-friendly state due to no income tax, it still has some of the highest property taxes in the country. This can be quite the burden on the bottom line of any commercial enterprise. Thankfully, there are measures to reduce this burden, such as commercial property tax appeals and the revamped business personal property (BPP) exemption that removes up to $125,000 from the taxable value. However, there is another large burden on businesses: federal taxes.

Thanks to 2025 legislation, there is now an effective way for property owners to cut or even eliminate federal taxes for their business. This is cost segregation, a strategy that uses accelerated depreciation to reduce federal taxes. With the federal tax deadline coming up, now is the perfect time to explore this novel technique. Even if there is not enough time before the April deadline, extensions can move the due date to October, perhaps opening the door for the technique. O'Connor will go over cost segregation and how it can help Texas businesses.

What is Cost Segregation?

Once seen as something of a loophole, cost segregation has since been officially recognized by the IRS, which has codified a strict procedure for it to work. This strategy takes commercial property and itemizes various aspects into short and long-term categories for depreciation. Under traditional depreciation, the entire property was considered a monolithic entity, reaching full depreciation at 39 years. This strategy instead separates all real property into more realistic depreciation timeframes, allowing businesses to apply this to federal taxes sooner.


Real tangible property is separated into five, seven, and 15-year categories. Aspects of the commercial property are then placed into these categories, where their depreciation may be applied to federal taxes at the appropriate times. This means that tax savings can be acquired gradually as the property ages, rather than as a lump sum at the end. In addition, retroactive depreciation can be used for older buildings and properties, allowing for a large reduction upfront.

What Real Property is Used in Cost Segregation?

On a long enough timeframe, the entirety of a building or property will be depreciated. However, accelerated depreciation is focused on things that age first. This includes furniture, fixtures, machinery, fencing, parking lots, landscaping, plumbing, and other property that depreciates at a faster rate than an entire building. As stated above, these are categorized by timeframes of five, seven, and 15 years, with each being applied to taxes at the appropriate time. This is far more useful to the bottom line compared to waiting almost four decades.

Tangible vs. Intangible

As we covered in our recent article on BPP and renditions, it is key to separate tangible property from those that are intangible. Tangible property refers to items or assets that exist in the real world and can be touched. This includes machinery, carpeting, furniture, vehicles, landscaping, and more. Intangible property refers to things like software, licenses, contracts, warranties, intellectual property, and other such assets. Currently, like BPP, cost segregation only uses tangible assets, so separating the two is a must before moving forward.

Bonus Depreciation

While cost segregation is renowned for its ability to lower federal taxes, it is bonus depreciation that has made the technique famous. When a building is constructed, purchased, or goes through extensive renovation, an owner may use bonus depreciation to apply up to 100% of the depreciation of short-life assets to federal tax reduction. This can be applied to any property that will depreciate in under 20 years. In practice, this means anything but the land and the building itself could be applied to federal taxes during the year of purchase or construction. If previous depreciation was missed, it can also be recaptured by using a look-back study, which can then be applied to current taxes.

2025 Overhaul

Cost segregation and bonus depreciation got a major update in 2025. Thanks to the One Big Beautiful Bill, bonus depreciation became permanent. Before that, it had been slowly sunsetting. Now, enshrined in law, bonus depreciation is here to stay, allowing for future financial planning and the ability to free up cash flow to use in reinvestment on other needs instead of throwing money away on taxes. The overhaul allows bonus depreciation to be applied to property put into service after January 19, 2025.

Cost Segregation Studies

Due to the high potential for a return, the IRS has incredibly strict guidelines that must be enforced. Straying from these can easily lead to an audit or worse. This means that extensive planning must be put into starting the process. The first step is a cost segregation study, which examines the entire property, classifying every eligible asset into either short or long-life categories. For most commercial properties, between 40% and 80% of assets can be classified as short-life. During a study, a property is assessed, assets are identified, costs are appraised, and then the assets are put into their classifications.

Possible Tax Benefits

When used correctly and in the IRS-prescribed manner, cost segregation and bonus depreciation can reduce federal income taxes significantly. With bonus depreciation, taxes can often be eliminated entirely in the first year. This means that the cost of a study could be paid back over a dozen times, sometimes even more. By utilizing accelerated depreciation, property owners can use their existing assets to increase cash flow, which can then be used to grow their business.

Federal Taxes Due April 15, but can be Extended to October 15

If property owners are looking to explore cost segregation, the April 15 deadline could be too close to launch an extensive study. Since this must be carefully carried out, rushing is not ideal. Extensions can be filed instead, giving owners up to six months to carry out a study. This is more feasible. If owners are able to secure the extra time, then they must decide if they want to do their study themselves or bring in a professional. This often depends on the size of their commercial property or business and what the savings will be. If an owner has a relatively small business, paying a fee might not be worth it. However, large properties and companies usually benefit greatly from getting expert help, with the fee being paid for multiple times over in just the first year, along with the cost of the study.

About O'Connor:
O’Connor is one of the largest property tax consulting firms, representing 185,000 clients in 49 states and Canada, handling about 295,000 protests in 2024, with residential property tax reduction services in Texas, Illinois, Georgia, and New York. O’Connor’s possesses the resources and market expertise in the areas of property tax, cost segregation, commercial and residential real estate appraisals. The firm was founded in 1974 and employs a team of 1,000 worldwide. O’Connor’s core focus is enriching the lives of property owners through cost effective tax reduction.

Property owners interested in assistance appealing their assessment can enroll in O’Connor’s Property Tax Protection Program ™. There is no upfront fee, or any fee unless we reduce your property taxes, and easy online enrollment only takes 2 to 3 minutes.

Patrick O'Connor, President
O'Connor
+1 713-375-4128
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