Is a cost segregation worth it?

Question

I currently have 4 properties, 2 SFH and 2 duplex, that we have been renting since 2023. Initially these loans were in my personal name, and now as of 3/2025 are now in our LLC where we consolidated into a commercial loan to pull out equity. The initial purchase of these properties in 2023/2024 was 569k. When we consolidated these 4 units, appraisals were done and totaled 725k across the units.

We have not used depreciation yet, only bc we needed to get my wife into the real estate professional role(REP), which was done in 2024.

I have a W-2 job as well as 1099 work that I have not placed into an LLC/Scorp yet(this is coming). We have a decent amount of tax liability for 2024, we had been holding on cost seg, bc of the REP and the status of bonus depreciation in Congress.

We have done some work to the properties, roof and windows in the duplexes, and flooring and basement drainage in the SFH.

I know that with cost seg these can be costly, so I am trying to get a feel for if this is worth it to pull the trigger to reduce our tax liability and maybe even get some return to reinvest. Curious of the thoughts of the brain trust.

Matt

Costin I. · Answer

@Matthew Waggoner - study this diagram to find answers to your questions and questions you have yet to think about.

Matthew Waggoner · Answer

I wanted to follow up with those who may have seen this post.

I elected to perform cost seg study on the four properties that I plan to hold for a long period. This yielded about $100k in year one deductions based on catch up plus bonus depreciation on these residential units.

The cost was low and benefit high in my case because the $1800 it cost was very much amenable based on the tax savings. I want to reiterate that this strategy works for my business plan based on our plan to hold the property for extended periods of time and the fact that we will likely plan for a 1031 exchange for these properties.

The process was easy and you can do it yourself with online software. I will forego saying which one I did, but I will say that the program I used had audit protection. As long as you have your land value, original purchase price, and itemized list of what was in the property when you purchased ( appliances, ceiling fans, landscaping etc.) the process literally takes a couple minutes. Additionally, this was recommended by my CPA.

So for my situation, this made a lot of sense, but it may not make sense for others based on what your overall business plan is. I do want to thank all of you that contributed to my post. It's what makes BP a great community.

Matt

Gregory Wilson · Answer

I see it as important to consider the amount of shelter that gets the best result. If you have 125k of income to shelter and cost segregation gets you a 100k deduction, that is too much because you are essentially losing the benefit of your personal standard or itemized deductions and exemptions down to the baseline and reducing the carry forward losses.

The renovations you described are really just repairs because they do not expand the use or productivity of the properties. They are just deductible repairs and if you paid them in 2024 you are better off to deduct them as opposed to capitalizing them.

Some tax preparers mistakenly think that an repair like a roof or a floor is capital item because it costs a lot. Not so.

Laura Navaquin · Answer

Hey Matt

Great job on the growth and strategic planning so far. You’re doing a lot of things right, especially moving the properties into an LLC via a commercial loan and getting your wife REP status , that combo sets you up for major tax benefits.

Here are a few points based on what you’ve shared:

Since your wife secured Real Estate Professional (REP) status in 2024, you now qualify to offset active income with passive losses from real estate. This means if you do a cost seg study in 2024, the bonus depreciation you capture can go directly against your W-2 and 1099 income, potentially wiping out a significant portion of your tax bill.

Even with bonus depreciation tapering down (60% in 2024), it’s still incredibly impactful when paired with REP. And in your case, with $725K in property value, you’re looking at a potential paper loss in the six figures, depending on the asset breakdown.

Cost seg studies typically run:

• $3K–$6K per property for residential
• Or a bundle price if you group them with the same provider

$3K–$6K per property for residential

Or a bundle price if you group them with the same provider

But if the projected depreciation results in, say, $30K–$80K+ in tax savings depending on your bracket, it’s often well worth the upfront investment. Some firms even offer a free feasibility analysis to show your estimated tax impact before committing.

If you haven't taken depreciation yet, doing a catch-up via a cost seg can result in a huge first-year deduction. If it offsets your income and generates a refund, you can recycle that capital into your next acquisition, rehab, or even fund a short-term flip or lending opportunity.

• You’ll want to track capital improvements like roofing, drainage, etc., separately. These may affect the asset's depreciation schedule but could also qualify for bonus depreciation themselves.
• Once your 1099 income moves into an S-Corp or LLC, that structure could also affect how you flow losses, so work closely with your CPA.
• Consider running a "what if" scenario with your tax advisor to determine the breakeven on doing the cost seg this year.

You’ll want to track capital improvements like roofing, drainage, etc., separately. These may affect the asset's depreciation schedule but could also qualify for bonus depreciation themselves.

Once your 1099 income moves into an S-Corp or LLC, that structure could also affect how you flow losses, so work closely with your CPA.

Consider running a "what if" scenario with your tax advisor to determine the breakeven on doing the cost seg this year.

Check if your cost seg provider includes audit protection or support. It adds peace of mind knowing they’ll back you if the IRS ever asks questions.

. If you want a warm intro to reputable cost seg specialists who work with small portfolios like yours, I’d be happy to send one over that ives worked with personally.

Keep going, the way you're leveraging strategy and tax code is how wealth is built.

– Laura Navaquin

Malik Javed · Answer

Some companies offer DIY cost segregation options, which can be much cheaper than a full blown cost segregation. Just be sure you fully understand the process to avoid any mistakes.

When picking a firm, make sure to go with a reputable one. A great place to start is www.ascsp.org, where you can find certified companies.

If you're choose to hire someone to do the cost seg for you, definitely check out the credentials of the person doing the study. Look for the Certified Cost Segregation Professional (CCSP) designation, which means they’re certified by the American Society of Cost Segregation Professionals. You’d want someone as trustworthy as a CPA for your taxes!

https://www.biggerpockets.com/forums/51/topics/1206189-cost-...

Feel free to reach out if you have any questions.

Andrew Syrios · Answer

Usually when I hear about people doing cost segregation, it's on larger properties. On big apartments and commercial properties I think it's absolutely worth it. On SFH and duplexes, I'm not really sure tbh.

Ashish Acharya · Answer

@Matthew Waggoner Given your situation, with your wife qualifying for Real Estate Professional Status (REPS) in 2024 and your combined property basis around $569K plus improvements, a cost segregation study could be highly valuable. With REPS, you can use rental losses to offset both W-2 and 1099 income, and even with 60% bonus depreciation in 2024, you could likely generate $100K–$150K or more in immediate paper losses. Although a study typically costs $4K–$6K per property, the potential tax savings would far outweigh the upfront expense, especially given your current tax liability. Plus, your recent capital improvements (roof, windows, flooring) may further accelerate depreciation. If done before filing 2024 taxes, you can capture all these benefits without needing amendments.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Kate Sanchez · Answer

@Matthew Waggoner Nice portfolio growth! Have you priced out a cost seg with projected tax savings now that REP applies, and run ROI to see if the upfront cost justifies the write-off?

Mohamed Youssef · Answer

@Matthew Waggoner

Usually, you won't see the most benefit from cost seg. study unless you are able to offset rental losses from depreciation against other types of income ,but you can only do that if you qualify for REPS or materially participate in STR, or if the real estate or any other passive activity is generating a lot of cash flow or income and then you can use those losses resulting from the accelerated depreciation to offset them.

Is a cost segregation worth it?

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