Short answer: usually yes. A cost segregation study on a rental you buy and place in service this year can offset depreciation recapture from a rental you sold this year — provided both properties are passive activities for you. The deduction and the gain have to land in the same bucket. When they do, the offset runs close to dollar-for-dollar. When they don't, the study is still worth doing, just not for this year's recapture bill.
It is the fourth-quarter call we field most, and the move has a December 31 deadline plus one condition that decides it.
What recapture actually looks like when you sell a rental that had a study
A study splits your depreciable basis: part moves into 5-, 7- and 15-year property — appliances, carpeting, cabinetry, specialty electrical, land improvements — and the rest stays on the 27.5-year schedule. On a sale those two halves come back differently.
Depreciation claimed on the shorter-life property is recaptured under section 1245 as ordinary income, up to the amount taken. Depreciation on the 27.5-year building portion returns as unrecaptured section 1250 gain, taxed at a federal rate of up to 25%. Both are taxable in the year of the sale, and neither is a penalty for having done a study — the study moved the timing of your deductions, and the sale settles up. We walk through that settlement in depreciation recapture after a cost segregation study.
Why a new study's deduction can land on that gain
Two things make the offset work. First, the passive activity rules treat gain on the disposition of property used in a passive activity as passive income. If the rental you sold was passive for you — a manager ran it and you did not materially participate — the recapture and the rest of the gain arrive as passive income on Form 8582.
Second, passive losses offset passive income. A study on a newly placed-in-service rental produces a large first-year deduction: 100% bonus depreciation is in effect for property acquired (contract signed) after January 19, 2025, so the reclassified amount is deductible in year one rather than spread over 5, 7 and 15 years. If that deduction exceeds the property's income, the result is a passive loss — exactly what the passive gain from your sale can absorb.
A third benefit is quieter: a fully taxable sale also frees the suspended passive losses the sold property was carrying. Those come first, so net them in before deciding how much new deduction you need — how passive losses interact with a study covers the ordering.
The math on a $540,000 replacement rental
Take a landlord who sold a long-term rental in 2026. A study was run in its first year, and $78,000 of depreciation was claimed over the holding period on the 5-, 7- and 15-year property. On the sale, that $78,000 returns as section 1245 ordinary income.
In November of the same year the landlord places a replacement rental in service: $540,000 all-in, 80% of it depreciable basis after excluding land, so $432,000 on the building schedule. A typical residential study reclassifies roughly 22% of basis into shorter-life property, about $95,000 here, and with 100% bonus depreciation the whole $95,000 is deductible in 2026. After two months of rent and the 27.5-year slice, call it a $90,000 net passive loss for the year.
$78,000 of that loss sits directly on the recapture. At a 32% marginal federal rate that is about $24,960, plus the 3.8% net investment income tax on the same $78,000, roughly $2,964 — call it $27,900 in the year of sale, with about $12,000 of passive loss left to carry forward.
State treatment is separate: a state that has not conformed to 100% bonus depreciation makes you spread the deduction out on the state return even while the federal return takes it now. See state bonus depreciation conformity.
Where this breaks: when the gain is not passive
This is the condition people get wrong. If you materially participated in the property you sold — a short-term rental where you met one of the material participation tests, or any rental grouped into real estate professional status — the gain is non-passive, and a passive loss from a new long-term rental cannot reach it. Offsetting non-passive gain takes non-passive deductions: a materially-participated short-term rental, or REPS with the new rental in your grouping.
The mirror case is better news. If the sold property was passive and the one you are buying will be a short-term rental you materially participate in, the new loss is non-passive — it can reach past the sale gain into your other ordinary income.
Either way, settle the character of both sides with your CPA before you sign a purchase contract. A deduction in the wrong bucket is not lost, but it can be deferred for years.
The deadline that decides whether this works at all
Placed in service by December 31 — not closed, placed in service. The property has to be ready and available for rent in 2026. A December 18 closing with a January listing is a 2027 deduction, and the recapture does not wait. What counts as the placed-in-service date is worth reading before you bank on the timing.
The study itself does not have to be finished by year-end: the deduction follows the in-service date, not the delivery date, so a property in service in November can be studied in January and still produce a 2026 deduction.
One thing not to worry about: the mid-quarter convention. With 100% bonus taken off the top there is no remaining basis in the 5- and 7-year property for it to slow down.
What to do before year-end
In order: have your CPA confirm whether the gain is passive or non-passive and what suspended losses the sale frees; get the replacement property genuinely in service before December 31; then run the study, on its own schedule.
In that order the study is a known quantity rather than a hope. In the wrong order, it is a deduction looking for a home.