Cost segregation roi

Member since 2020 · 1 post · 2 votes

I had a conversation with my accountant and he doesn't think there's a good return on investment to do a cost segregation on any properties under $1 million so he doesn't recommend it. my properties have excellent cash flow and are triple net leases so I'm getting killed on taxes. Is there another opinion out there? I think the last cost segregation I paid $8000 on a commercial property. I was considering buying another property and doing the cost segregation study as a tax strategy. Anybody have experience with a lower price for a cost segregation study for residential on less expensive properties?

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Mohamed YoussefBusiness Member

Accountant · Brea, CA · Member since 2018 · 118 posts · 62 votes

For a residential property, the cost of the study is usually around $3000 if you hire a reputable cost seg company that does a site visit, photos and a full report. I heard that there are some online companies that would do it for around $1000 but I personally would never use something like that, only because I'm not sure if it will hold in case of an IRS audit.

Cost seg. will definitely return the investment if you can use the losses generated from the accelerated depreciation to offset other income, i.e. you qualify for the Real Estate Professional Status or to offset the income generated from the other profitable properties. I believe you mentioned your other triple-net leases' cash flow.

This is just my opinion, but perhaps your CPA has a good reason for not recommending it based on your specific situation.

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Mohamed YoussefBusiness Member
Accountant · Brea, CA · Member since 2018 · 118 posts · 62 votes
1y
For a residential property, the cost of the study is usually around $3000 if you hire a reputable cost seg company that does a site visit, photos and a full report. I heard that there are some online companies that would do it for around $1000 but I personally would never use something like that, only because I'm not sure if it will hold in case of an IRS audit.
Cost seg. will definitely return the investment if you can use the losses generated from the accelerated depreciation to offset other income, i.e. you qualify for the Real Estate Professional Status or to offset the income generated from the other profitable properties. I believe you mentioned your other triple-net leases' cash flow.
This is just my opinion, but perhaps your CPA has a good reason for not recommending it based on your specific situation.
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Julio GonzalezPro Member
Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
1y
There are a lot of factors to consider when get a cost seg study to determine if the benefits outweigh the costs. For example, are you in an area where land is very valuable leaving you with less to depreciate? What was the purchase price of your property? etc.

Have you obtained any detailed cost/benefit analysis quote? Most cost segregation study companies provide the quote for free. Is it a reputable company and will the documentation provided from the study hold up in an audit? If you need any help or have any questions, feel free to reach out!
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Sean O'KeefePro Member
CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
1y
Quote from @Jason Fournier:

I had a conversation with my accountant and he doesn't think there's a good return on investment to do a cost segregation on any properties under $1 million so he doesn't recommend it. my properties have excellent cash flow and are triple net leases so I'm getting killed on taxes. Is there another opinion out there? I think the last cost segregation I paid $8000 on a commercial property. I was considering buying another property and doing the cost segregation study as a tax strategy. Anybody have experience with a lower price for a cost segregation study for residential on less expensive properties?

ROI on cost seg is definitely a question investors should consider before getting one.

However, the question that you need to ask before that is whether you qualify for material participation requirements with a triple net leases. The answer is probably "no". If you're not materially participating in the investment property it may be difficult to leverage the losses depending on your tax plan goals and portfolio.
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
1y
@Jason Fournier Yes, cost segregation is a no-brainer—especially when you're getting 100% of the cost back in deductions, even on properties under $1 million. While some CPAs stick to a “$1M+” threshold, that's outdated thinking.
If you're in a high tax bracket, and especially if you own NNN commercial properties with strong net income and few deductions, a cost seg can unlock massive savings. For properties in the $300K–$800K range, many investors get high ROI from engineered studies priced at $2,500–$4,500, not the $8,000 you might hear quoted. Even software-assisted or hybrid studies can yield solid results. And with 60% bonus depreciation in 2024, front-loading deductions now can produce a 5x–10x ROI in year one.
If you qualify as a Real Estate Professional or use the STR loophole, those losses can even offset W-2 or active income—making cost segregation not just smart, but a must-do strategy.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
1y
I'd never make a blanket assumption like that. The only way to know if the ROI on a cost segregation study for a property under $1M is worth it is by running a full tax plan. Can you qualify as a real estate professional? Can you use the passive losses to offset active income? If not, it may not be worth it. But if you do qualify—or if your income is under $150K and you meet the right criteria—it might make sense, even on a sub-$1M property. It also depends on how much bonus depreciation you'd actually get from the property.
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Brian Kiczula
Specialist · Sarasota, FL · Member since 2024 · 33 posts · 8 votes
1y
@Jason Fournier I would be happy to work up an estimate of benefit for you.
Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

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Nathaniel QuesenberryBusiness Member
Accountant · Member since 2024 · 15 posts · 9 votes
1y
There's a lot of factors to consider when making the decision to have a cost segregation done on your properties. Primarily I'm looking for whether or not you can use the additional depreciation as a nonpassive loss rather than it being trapped by the passive loss limitations. After that, I'd say its a good idea to compare the tax savings to the cost of the study because at the end of the day you're doing a cost segregation for the tax savings more often than not.
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