DIY Cost segregation options for a 12 unit apartment

Rental Property Investor · Washington/Texas · Member since 2016 · 104 posts · 12 votes

Im looking for a DIY cost segregation option for a small 12 unit apartment. The size doesnt justify going with a manual cost seg study with a vendor like ETS or so which would cost us over 5k. I came across this software that seems to do it for just $650. It's called Cost seg EZ. Any body have experience using it or any other diy cost seg software? https://costsegez.com/

kbkg doesnt provide software reports for anything more than 6 units. Any other cost seg software recommendations which doesnt cost thousands of dollars and provide audit guarantees?

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Jeff Nash

Accountant · McKinney, TX · Member since 2023 · 393 posts · 580 votes

Most of the specialty cost seg providers will do an upfront analysis and give you a range of the potential deduction and take into account your federal and state tax bracket to determine the tax benefit.

Is the $5k cost an actual quote you received or just an assumption? I am not sure about your situation (REPs, tax bracket, age or holding period of the property) but I look at the cost benefit just like an NPV analysis. If you have to pay $5k but will actually save $7k you take that option.

To answer your question, I am not familiar with that DIY company but know of another one that a peer uses that might be lower for a property of your type. I am not personally a proponent as I think there are a number of potential issues and limitations of DIY, but you can make your own determination.

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Jeff Nash
Accountant · McKinney, TX · Member since 2023 · 393 posts · 580 votes
2y
Most of the specialty cost seg providers will do an upfront analysis and give you a range of the potential deduction and take into account your federal and state tax bracket to determine the tax benefit.

Is the $5k cost an actual quote you received or just an assumption? I am not sure about your situation (REPs, tax bracket, age or holding period of the property) but I look at the cost benefit just like an NPV analysis. If you have to pay $5k but will actually save $7k you take that option.
To answer your question, I am not familiar with that DIY company but know of another one that a peer uses that might be lower for a property of your type. I am not personally a proponent as I think there are a number of potential issues and limitations of DIY, but you can make your own determination.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
2y
Quote from @Prasad J.:

The size doesnt justify going with a manual cost seg study with a vendor like ETS or so which would cost us over 5k. I came across this software that seems to do it for just $650.

Hey Prasad!

For the reasonable cost, I'd most likely give the $650 software a try. Not much to lose.

Good luck and report back your findings if you use it and have time.
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Jarrod Ochsenbein
Rental Property Investor · Oregon/Arizona · Member since 2023 · 124 posts · 79 votes
2y
Quote from @Prasad J.:

Im looking for a DIY cost segregation option for a small 12 unit apartment. The size doesnt justify going with a manual cost seg study with a vendor like ETS or so which would cost us over 5k. I came across this software that seems to do it for just $650. It's called Cost seg EZ. Any body have experience using it or any other diy cost seg software? https://costsegez.com/
kbkg doesnt provide software reports for anything more than 6 units. Any other cost seg software recommendations which doesnt cost thousands of dollars and provide audit guarantees?

Prasad, did you find out anything about Cost Seg EZ? NOTE: Cost Seg states they only do under $2 million dollar properties, so your 12 plex is most likely over that. See the 1,2,3,4 notes I posted below on my only cost seg guestimate.
I networked with several other investors, including Sam Wegert. Sam has 200 units of SFH in NC and he has been using Cost Seg EZ. I just have one SFH that I am using for Co-living (Rent by Room). My Cost Seg EZ @ 80% bonus depreciation below. Show $78k deduction on $452k house. Not sure if that is accurate, but that is what it showed with the data I entered.
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Kelly O'Keefe
Accountant · NC · Member since 2023 · 123 posts · 163 votes
2y
Hi @Prasad J.
Depending on the benefits I might consider hiring a firm and paying the fee. That 5k sounds like a large amount, but you have the potential to save way more in a single year. I would prefer to have a cost set signed off on by a engineer that I know will stand up to an audit vs a DIY option
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Kory Reynolds
Accountant · NH · Member since 2019 · 269 posts · 288 votes
2y
The IRS has tiers of accepted cost allocation techniques for real estate - a total of 6 tiers! From what they are most happy with to least excited about below:

1. Detailed Engineering Approach from Actual Cost Records
2. Detailed Engineering Cost Estimate Approach
3. Survey or Letter Approach
4. Residual Estimation Approach
5. Sampling or Modeling Approach
6. "Rule of Thumb" Approach

An engineering study is the gold standard. The DIY cost segregation CAN be accepted and stand up in audit, but it is number 5 in the tiers given the potential for significant inaccuracies. It is one step above "eh, I just pull 20% of all my buildings for 1245 property". The more unique your property is, the more inaccurate the DIY approach will be.
I do have clients that with smaller properties do tend to do the DIY cost segregation approach. The ones I prefer the most are from the companies that also do real engineer studies (KBKG). I would also only go with an option that provides audit support / audit protection - ensure that if you do come under scrutiny, they will come out to do a full engineer study to defend it. Most of these companies charge a few hundred more for that option, but if you get audited once, that will pay for that additional fee 100x over.
The full engineer studies also tend to be MUUUCCH better for addressing things like partial asset dispositions in the future, since they actually went through the building and picked out what it has and what all the pieces are. The engineer studies also tend to get a more aggressive (good tax) result.
Consider if you have a few buildings that a cost seg team could do - I certainly have seen discounts for bundling them together that pulls the cost down. The loose rule of thumb would be for a building cost of $750k-$1m+, it is worth it to just get a normal engineer study.

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Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
2y
In this case I would personally use DIY cost seg, they offer audit protection. I do studies with them even on small props. Feel free to DM me for a discount code.
Not tax or legal advice, just what I personally do!
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Sean O'KeefePro Member
CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
2y
Quote from @Lee Ripma:

In this case I would personally use DIY cost seg, they offer audit protection. I do studies with them even on small props. Feel free to DM me for a discount code.
Not tax or legal advice, just what I personally do!
I would strongly recommend getting an Engineering Firm. The larger the rental the higher the risk and reward.
[email protected]628-241-0888
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Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Quote from @Sean O'Keefe:

Quote from @Lee Ripma:

In this case I would personally use DIY cost seg, they offer audit protection. I do studies with them even on small props. Feel free to DM me for a discount code.
Not tax or legal advice, just what I personally do!
I would strongly recommend getting an Engineering Firm. The larger the rental the higher the risk and reward.

Agree here, it seems like a great way to save pennies but then pay dollars later IMHO
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Max Segal
Specialist · Chicago, IL · Member since 2025 · 15 posts · 4 votes
8mo
Hi Prasad - founder of SMF Cost Segregation Advisors here. I am obviously biased, but I would highly advise against a DIY option - there is specialized engineering knowledge as well as the IRS Cost Seg Audit Guide required to be able to complete these reports accurately and most importantly to maximize your deductions (legally)! There are many niche items can be treated as personal property and or land improvements that will result in higher tax savings that the de minimis amount upfront for the report.
While it may be a bit more upfront (i.e. we charge only $2.5k for a small multifamily property), the additional savings should justify the delta in cost by many multiples.
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