Many real estate investors have never heard of cost segregation from their tax preparer, even though it could generate significant tax savings. According to Brian Kiczula, principal at CostSegRx, the primary reason is historical cost. Traditional cost segregation studies for small properties could cost thousands of dollars, often exceeding the tax benefit, leading CPAs to default to straight-line depreciation. That default has persisted even as engineering-based studies have become affordable for smaller residential properties.
Kiczula emphasizes that the affordable studies are not DIY online calculators but detailed engineering analyses. “I’m talking about an engineered study where someone is looking at the property and providing an accurate study back,” he says. Beyond cost, many CPAs simply lack deep knowledge of real estate investment strategies, especially if their real estate clients are a small part of their practice. “They’re not investor-friendly CPAs, or they’re not well versed in real estate,” Kiczula notes.
For investors, the right approach is to get a free estimate of benefit first and present it to their CPA for review. “I’m not saying to get a cost segregation study done and then take it to your tax professional,” says Kiczula. “I’m saying get an estimate done and then see how the benefits might apply to your specific situation.” This allows the CPA to evaluate actual numbers and ensures the depreciation aligns with the investor’s tax picture, including active vs. passive income considerations.
If a CPA still pushes back, Kiczula advises discerning whether the objection is based on a genuine analysis or unfamiliarity. He acknowledges cases where cost segregation is not beneficial, such as when an investor plans to sell soon and face depreciation recapture, or when losses cannot be utilized. “I don’t mind canceling proposals,” he says. However, if the CPA is simply not versed in cost segregation, an independent estimate can provide concrete numbers for discussion.
CostSegRx offers complimentary estimates of benefit with no obligation. As Kiczula notes, the key is bringing the topic to the table rather than assuming a CPA will initiate it. Investors can learn more at costsegrx.com.
