Are DIY cost segregations a good idea?

Fayetteville, Arkansas
Tax, SDIRAs & Cost Segregation
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Are DIY cost segregations a good idea?

Wiley Hood
Director · Fayetteville, AR · Member since 2015 · 11 posts · 11 votes

Recently, I've decided to do a cost segregation study on a new $490K property that I purchased this year.  I came across a firm (KBKG) that offers a $400 DIY cost study (paying for a membership).  I enter the information, and they generate the report.  It looks fairly simple.  To have a professional do it, it will be about $3,500.  Has anyone used the DIY tool, and are there risks?

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
3y

@Wiley Hood

Yes, there're risks:

1. Risk that you will not enter good data, resulting in a possibly seriously wrong results

2. Risk that the IRS will challenge it, which is far more likely than with a full-service professional report

3. Risk that you will short yourself by not maximizing your cost seg potential

That said, when full-service cost seg is not economically sensible, DIY is a valid alternative

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  • Nitin Bansal
    Member since 2024 · 2 posts · 0 votes
    1y

    I might be missing something when pros are suggesting DIY tools have higher risks of IRS audits, how will IRS know that? On the returns there is no checkbox to say full engineered depreciation schedule vs XX method. Enlighten pls.

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  • Gian PazziaBusiness Member
    Specialist · Pasadena, CA · Member since 2024 · 38 posts · 15 votes
    1y

    Nitan- thank you for being a client of our online tool.  I'm one of the founders and the creator of the software and a cost seg expert for over 25 years.  You are correct that if you use the study on your tax return in the year it was purchased, the IRS would have a difficult time knowing if a cost segregation study was done. The risk would be that if audited, the IRS will challenge the cost seg study. Whether it was done using software or not, a study can still be challenged.   

    We have gone through several IRS audits with our software since it was launched in 2016. I'm not talking about an IRS field agent asking questions about the study.  In many of these cases, the reports were elevated to the next level of IRS Subject Matter Experts (their IRS Engineers).  

    IRS engineers often start cost seg audits by denying things in the cost seg study. If it's not well defended, they will bully the taxpayer into giving up tax benefits.  Our self-service software has sustained 100% of our results in every case we to date since it's launch. 

    Not all of the software tools out there can put this in writing like I am today. It matters who stands behind your report.   

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 902 votes
    11mo

    DIY cost segregations might seem like an easy way to save money, but they often miss key engineering and tax details the IRS looks for. If the report gets questioned, you could lose those deductions and end up with a bigger problem later. Paying a professional gives you peace of mind that it’s done right and defensible if ever audited.

    Malabute & Company CPAs525 Reviews
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  • Rohullah Sharifi
    Dr · VA · Member since 2025 · 154 posts · 34 votes
    11mo

    A cost segregation study can be useful if you plan to hold the property long term, as it accelerates depreciation and boosts cash flow. However, it’s not free money—you’ll face depreciation recapture when selling, which reduces your basis and increases taxable gain. If you’re not in a high tax bracket or only have rental income, the benefit may be limited.

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  • Account Closed
    Member since 2026 · 5 posts · 6 votes
    8mo

    In my opinion, doing a cost seg study is one of the wisest thing you can do. The potential audit risk of a DIY report just wasn't worth the upfront savings for me. The professional study I got ended up finding several thousand dollars more in 5-year property, which covered its own cost in the first year. I ended up having Cost-Seg guys and my CPA clearly told me how defensible their audit was which was probably one of the important strategy I had.

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  • Account Closed
    Investor · Hinton, WV · Member since 2026 · 10 posts · 5 votes
    8mo

    I realized the DIY tool would give me a report I filled out myself, but the professional study would give me an engineering document I could actually hand to the IRS.

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