First Time Doing Cost Segregation, 3 Companies interviewed, 3 Very Different Answers.

Washington, District of Columbia
Tax, SDIRAs & Cost Segregation
9moFollow

First Time Doing Cost Segregation, 3 Companies interviewed, 3 Very Different Answers.

Joaquin Camarasa
Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes

Hi everyone,

For the first time, I’m considering cost segregation on my rental properties. I recently realized I qualify since I’m a Real Estate Professional and actively participate in all of them.

I interviewed three different cost segregation companies, and the answers I got were very different. I’m sharing the details below to get your thoughts on which option makes the most sense and what you’d do in my situation.

Property Overview

All are single-family rentals:

1️⃣ Property #1

  • Purchase price: $330k

  • Depreciable basis: $210k

  • Bought: 2017

  • Placed in service: 2019

2️⃣ Property #2

  • Purchase price: $575k

  • Depreciable basis: $370k

  • Bought & placed in service: 2022

3️⃣ Property #3

  • Purchase price: $510k

  • Depreciable basis: $350k

  • Bought & placed in service: 2020

Proposals Received

🅰️ Company A

  • “Fast study” (no engineered site visit)

  • Properties 1 & 2: $1,000 each

  • Property 3: $2,000 (engineered, potentially virtual)

  • Form 481 prepared

  • Form 3115 completed & filed: $1,800

  • Audit assistance included

  • Estimated 38% cost segregation

  • Total cost: $5,800

🅱️ Company B

  • Engineered studies on all 3 properties

  • In-person site visits

  • $2,100 per property

  • Audit assistance included

  • Estimated 33% cost segregation

  • Form 481 provided

  • Assistance with Form 3115

  • Total: ~$6,300

🅲 Company C

  • Said it’s not worth doing cost segregation on these properties.

Questions for the Community

  • Is a non-engineered / “fast” study reasonable for SFRs?

  • Is 38% vs 33% a meaningful difference, or mostly marketing to get to go with them, then lower %?

  • Is Company C being conservative… or just honest?

  • For SFRs in this price range, is a full engineered study worth the extra cost?

Would love to hear from anyone who has:

  • Done cost seg on single-family rentals

  • Been through an IRS audit

  • Strong opinions on engineered vs. non-engineered studies

Thanks in advance!!!

2Reply
318 views

Most Popular Reply

Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
9mo

The IRS recognizes 6 methods for conducting a cost segregation analysis.  You could put these on a continuum.  On one end you have a very detailed engineering studies that are highly defensible in an audit and also very expensive.  On the other end, are ways to do a cost seg that are cheap (possibly free) but are very risky if you try to use them in defense of an audit.

I'd encourage you to read IRS publication 5653 starting at page 26

For SFR, most companies don't do a true full-blown engineering study. They will take some short-cuts to keep the cost down. Is that bad? Not necessarily. With millions of dollars on the line, we've always done detailed engineering studies on our apartments for our cost seg. Those cost is around $10,000. If Company C only does detailed engineering and the cost is similar, yes, it might not make sense to do them for a SFR.

3Reply
See this reply in the discussion

18 Replies

Jump to latestLatest
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    9mo

    The IRS recognizes 6 methods for conducting a cost segregation analysis.  You could put these on a continuum.  On one end you have a very detailed engineering studies that are highly defensible in an audit and also very expensive.  On the other end, are ways to do a cost seg that are cheap (possibly free) but are very risky if you try to use them in defense of an audit.

    I'd encourage you to read IRS publication 5653 starting at page 26

    For SFR, most companies don't do a true full-blown engineering study. They will take some short-cuts to keep the cost down. Is that bad? Not necessarily. With millions of dollars on the line, we've always done detailed engineering studies on our apartments for our cost seg. Those cost is around $10,000. If Company C only does detailed engineering and the cost is similar, yes, it might not make sense to do them for a SFR.

    3Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    9mo

    OP your assets have already started depreciation thus less benefit.   Plus you would be doing an Accounting change.  Talk with your tax preparer.  I don’t
    Think this is worth it.   

    Plus think of this as a loan from the federal government.  Since You have already started depreciating.  Crude estimate Of say $40,000 loan for 5 year average.  I don’t think it is worth it.  

    0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    9mo

    There's a lot of considerations before we discuss the cost segs:

    1. Do you have a time log to prove you're a real estate professional AND materially participate in your rentals? You mentioned being in an irs audit so I'd encourage you to do one before signing on to do a cost segregation study. For my clients, this is a requirement. 

    2. What does your tax situation look like? Assuming you're a real estate professional, what types of tax savings can you get this year? Are you expecting income to be higher next year? If yes, you may want to consider postponing or looking at which properties make sense. 

    3. For a lower basis property, I.e. property #1, you may want to consider not doing the cost seg study because you're not as likely to get as much benefit. 

    4. property 2&3 do have a decent amount of basis so there's probably some benefit that year as you'll have 100% bonus depreciation as 2020 and 2022 had 100% bonus depreciation.

    Before pulling the trigger on the cost seg, I'd recommend contacting your cpa to do some tax planning. 

    [email protected]
    Brick House CPAs53 Reviews
    WebsiteView Page
    1Reply
    • Joaquin Camarasa
      OP
      Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes
      9mo

      Hi @Greg Scott, thanks for the insight and for pointing me to IRS Pub 5653. I’ll review it.

      It also makes sense now why Company C may focus on larger properties where a full engineering study is justified. Appreciate you sharing your experience.

      0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    9mo

    You are over a million in asset value, that's starting to be worth it. It should result in a tax shelter about the size of the down payment. It may not be worth to company C, they like frying bigger fish. The most important thing is that it is bulletproof and you don't have to worry about defending it to the IRS down the line. That's why I chose a bigger company.

    3Reply
  • Joaquin Camarasa
    OP
    Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes
    9mo

    Hi @Henry Clark,

    Thanks for the perspective. I agree the benefit would have been larger if I had done this earlier, lesson learned. That said, based on the estimates I am seeing, it looks like roughly 80k in net tax savings for a cost of about 6k. My wife is a high W2 earner, so the acceleration has real value for us. I am not planning to sell these properties anytime soon and they are already stabilized, possibly long term holds forever.

    Given that, do you still think it is not worth pursuing the cost seg? I would really appreciate if you could expand on your thinking. My plan is to park the tax savings in VOO and keep it available for future CAPEX when needed.

    1Reply
    • Henry ClarkPro Member
      Developer · Member since 2020 · 4k+ posts · 4k+ votes
      9mo
      Quote from @Joaquin Camarasa:

      Hi @Henry Clark,

      Thanks for the perspective. I agree the benefit would have been larger if I had done this earlier, lesson learned. That said, based on the estimates I am seeing, it looks like roughly 80k in net tax savings for a cost of about 6k. My wife is a high W2 earner, so the acceleration has real value for us. I am not planning to sell these properties anytime soon and they are already stabilized, possibly long term holds forever.

      Given that, do you still think it is not worth pursuing the cost seg? I would really appreciate if you could expand on your thinking. My plan is to park the tax savings in VOO and keep it available for future CAPEX when needed.

      OP your $80k is the gross not the net.

      $930,000. Depreciable.   Use the higher 38% cost seg.   Use 25% tax bracket for your W2.  This comes close to your $80k.  

      You have to back out your depreciation already taken which is not straight line.  Higher up front.  Let’s say $60k tax impact possible.   This is a Loan since you will pay the taxes later.  Less the cost of the Study and the tax return changes which are expenses.  So $60k becomes ????.  

      Is it worth it?  We only do if we have a next deal in say 1 to 2 years.  Otherwise we pass.  Also as you mentioned you don’t plan to sale, say in the next 5 years, there won’t be a big negative.  Your call.  



      1Reply
  • Joaquin Camarasa
    OP
    Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes
    9mo

    @Aaron Zimmerman, thanks for taking the time to break this down. 

    Do you have a time log to prove you're a real estate professional and materially participate in your rentals?
    J: Yes. I’m a full-time realtor and I manage my own long- and mid-term rentals. I do update the log weekly just in case I need it at some point. AI has made my life a lot easier with this. 

    You mentioned being in an IRS audit and encouraged doing one before a cost seg.

    J: I haven’t personally been in an IRS audit. I was asking the community to hear from people who have gone through one to understand their experience.

    What does your tax situation look like? Assuming REP status, what kind of tax savings can you actually use this year? Are you expecting income to be higher next year?


    J: My wife is a high W-2 earner and I did pretty well this year too. If the net tax savings are in the ~$80k range, we would use a large portion this year and carry forward the rest. Hard to tell if income will be higher next year at this point.

    For a lower basis property (Property #1), you may want to skip cost seg since the benefit may be limited.


    J: That makes sense and I’m open to excluding Property #1 if the numbers don’t justify it.

    Properties 2 and 3 have stronger basis and were placed in service in years with 100% bonus depreciation.


    J: Agreed. Those two are really the main drivers of why I’m considering this now.

    I am leaning to go with company B, slightly more expensive but offer fully engineered reports with in person visits and audit protection. They also said they would assist filling the form 3115. 

    2Reply
  • Joaquin Camarasa
    OP
    Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes
    9mo

    Thanks for sharing, @Marcus Auerbach. Makes sense. 

    I wish they had just said that. It made me rethink how quickly they said no without any explanation. That’s mainly why I decided to make this post, I want to be fully protected and use the tools available properly.

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    9mo

    What is the name of the cost segregation firm for Company B?

    I would confirm that the cost segregation study that you are getting is an 'in person site visit'.

    You might be getting a hybrid study which is providing details, photos and sending a video of the property to the engineer where they will provide youa study instead of giving you a questionnaire to complete.

    The other reason where there might not be an in person visit is because the properties were placed into service many years ago. 

    The reason I think its a hybrid study is because the cost is overall low from what I seen in the industry for a back-dated study, completing form 3115, audit assistance along with an in person visit.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    1Reply
  • Joaquin Camarasa
    OP
    Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes
    9mo

    Hi @Basit Siddiqi,

    Company B is Veritax. They confirmed it would be an in-person engineered study.

    Company A is RE Cost Seg. They offered a fast study for each property for $950 or $2000 option for an engineered study, but they weren’t fully clear on whether that would be in person or virtual.

    0Reply
  • Costin I.
    Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
    9mo

    @Joaquin Camarasa - look here https://www.biggerpockets.com/forums/530/topics/1269905-bonu... for answers to your questions and questions you have yet to think about.

    0Reply
  • Rohullah Sharifi
    Dr · VA · Member since 2025 · 154 posts · 34 votes
    9mo

    Absolutely, you may pursue a cost segregation study. However, it should not be viewed as free money or a gift from the federal government. Cost segregation accelerates depreciation and will reduce your basis, resulting in depreciation recapture in the future. That said, if you are currently in a high tax bracket, it may still be a strategic option to consider.

    1Reply
  • Max Segal
    Specialist · Chicago, IL · Member since 2025 · 15 posts · 4 votes
    9mo

    My views on this topic are below and numbered.. happy to help 

    ---

    1. Is it worth it? (Company C) Company C is mathematically wrong here. Because your dates (2019-2022) qualify for 100% Bonus Depreciation, you are likely leaving ~$85k of cash on the table. Spending ~$6k to save $85k is a no-brainer.

    2. The "Risk Spectrum" The IRS Audit Guide puts methods on a continuum:

    • The "Rule of Thumb" (Risky): Uses generic averages (like Company A's 38%). Cheap, but often indefensible in an audit.
    • The "Full Field" (Expensive): Physical site visits. Bulletproof, but often costs $5k+ and is overkill for a simple rental.
    • The Sweet Spot: Engineering-Based Desktop Studies.

    For SFRs, you don't need a guy in a truck to measure your windows. You just need an engineer to review the data virtually. This gives you the defensibility of Company B with the pricing of Company A.

    1Reply
  • Sagiv O.
    Real Estate Investor · Austin, TX · Member since 2017 · 76 posts · 17 votes
    9mo

    Company B (Veritax) seems like the safer choice here. The price difference is marginal ($6,300 vs $5,800), but you're getting in-person engineered studies on all three properties plus audit defense. The 38% vs 33% difference from Company A is likely marketing fluff - actual results will depend on your specific properties and improvements.

    One important thing nobody mentioned yet: since all three properties were placed in service before 2023, you'll need Form 3115 (change in accounting method) to do the catch-up depreciation. Make sure whoever you choose handles that properly - it's not just about the study itself.

    Also, for Property #1 (2019), you've already taken 5+ years of regular depreciation. The benefit will be smaller compared to Properties #2 and #3. You might want to ask Company B if there's a discount for doing all three together, or consider skipping #1 if the numbers don't justify the cost.

    1Reply
  • Sagiv O.
    Real Estate Investor · Austin, TX · Member since 2017 · 76 posts · 17 votes
    8mo

    @Joaquin Camarasa - This is super common and exactly why shopping around is smart. Different firms use different methodologies, and some are more aggressive than others. The variance you're seeing isn't necessarily a red flag - it often comes down to how conservative vs. aggressive the approach is.

    Key questions to ask:

    1. Is it engineering-based? (IRS preferred)

    2. What's included in audit support?

    3. Do they stand behind their numbers if challenged?

    For single-family residential rentals like yours, traditional engineering firms can get pricey for the benefit. Since you're a REP and can fully utilize the deductions, you have solid fundamentals for cost seg.

    One option designed for residential REPs: room42.io does rules-based engineering. The methodology is consistent and defensible, which matters more than getting the absolute highest number. For three SFRs, you're looking at ~$1,600 vs $6-9k with traditional firms, and you'll still get 25-35% of your basis accelerated into year 1.

    Whatever you choose, make sure your CPA reviews the methodology before you commit. Their comfort level matters more than the depreciation number.

    0Reply
  • Bonnie Griffin KaakePro Member
    Real Estate Consultant · Denver, CO · Member since 2021 · 661 posts · 389 votes
    7mo

    Stick with an engineering-based cost seg on properties B and C. In years past, as a real estate broker, our company went through an audit. I can tell you that it would cost you many thousands of dollars if you got audited. The auditors do not leave your property unless they find SOMETHING! It is not worth taking short-cuts. If you are getting the 3115 481a done though the cost seg study as well, that alone is worth about $1,200 to $1,500. Hopefully, you are working with one of our CSSI reps who do engineering-based studies and include the 3115s. You will not be disappointed! 

    [email protected]303-475-4459
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free