"I took $400K in bonus depreciation. Now I'm selling. What's the damage?" Now they're selling and they get to see the other side of the cost seg And btw, this is just part of the game. This is precisely when good planning comes into play. It's depreciation recapture. And the IRS says you got an ordinary deduction yesterday, so you get ordinary income today. Here's how it actually works. When you sell, the gain gets split into buckets. Each bucket has its own tax rate. § 1245 property. Everything you took bonus depreciation on through your cost seg. Appliances. Flooring. Cabinets. Land improvements. That gain? Taxed at ordinary income rates. Not capital gains. Ordinary. Up to 37%. Unrecaptured § 1250 gain. The building itself. Straight-line depreciation over 27.5 or 39 years. Taxed at a max rate of 25%. Better than ordinary. Still not capital gains. Everything left after those two buckets fill up? That's your long-term capital gain at 0%, 15%, or 20%. That's the rate everyone thinks they're getting on the whole thing. They're not. Here's where people blow it. They run a cost seg in year one. Take $400K in bonus depreciation. Love the tax savings. Never model the exit. Then they sell and a chunk of their gain hits at 37% instead of 15%. The deduction wasn't free. But it was a deferral, and time value of money play. That said, the cost seg is still worth it almost every time. Why? Time value of money. A dollar saved today is worth more than a dollar owed five years from now. And you have exit strategies. → 1031 exchange into like-kind property. Defer the entire gain, indefinitely under § 1031. → Hold until death. Heirs get a stepped-up basis under § 1014. All that recapture disappears. → Installment sale under § 453. Spread the gain across multiple years to manage your bracket. The point isn't to avoid cost seg because of recapture. The point is to plan both sides of it. Model the exit before you take the deduction. Or work with someone who thinks about that aspect of it too!