Cost Segregation

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Cost Segregation

Jason Dillard
Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes

30k in cost segregation just saved us 400k in income tax this year!  If you own property valued at 400k each and up and pay income tax, I strongly recommend it.  

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Yonah WeissPro Member
Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
7y

Now with the reform of the TCJA 2017 and 100% bonus depreciation, tax benefits in the first year are even more significant.

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  • Lane Mobley
    Investor · Columbus, GA · Member since 2016 · 45 posts · 17 votes
    10y
    So what things did your CPA need to conduct the cost segregation? Names, ages, sn's of appliances, fences, etc? How did the deduction schedule work?
    2Reply
  • Jason Dillard
    OP
    Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
    10y

    Wasn't CPA.  Had to hire engineering firm to conduct study.  Yes,  they measured all components of properties and split them into different depreciation categories.  This report was submitted to CPA for our tax preparation.  

    Example:  one stripe in parking lot was 12 bucks depreciated over 27.5 years before

    Now it's over 5 years. 

    0Reply
  • Lane Mobley
    Investor · Columbus, GA · Member since 2016 · 45 posts · 17 votes
    10y
    So then how do i find an engineering firm to co duct my assessment for cost segregation? Will any engineering firm know how to do it correctly? And if i am house hacking (owner occupant) in one of my four units does that change things?
    0Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y

    @Lane Mobley,

    Yes that would change things. My advice would be to ask around for prices. I provide Cost Segregation Services nationwide; because I partner with an engineering firm to do so. That allows me to get my rates down considerably.

    [email protected]224-381-2660
    0Reply
  • Richard Shevak
    Ridgewood, NJ · Member since 2016 · 11 posts · 3 votes
    10y

    Just a few thoughts on cost segregation studies - If you have a property that you paid over $2mil for, that's probably the point at which you should consider a cost segregation study.   The reason I say that is the cost of the study.  In order for something for something to be respected by the IRS as a "cost segregation" study, a qualified engineer needs to come out to the property and do a site visit (see the IRS Audit Techniques Guide).  The principal value of a cost segregation is that it accelerates depreciation deductions - so you get more tax depreciation now and less later.  So, the benefit is a "time value" benefit (there's a potential rate differential - but I'll ignore that for now).  Because it's principally a "time-value" (cash flow) benefit, you probably (in my opinion) want to have a hold period of at least 5 years (not a technical requirement - but more of a practical requirement) before you'd look at that.  As far as what to look for . . . . ask about the qualifications of the person who is actually going to do the study. Cost segregation is a tax planning idea that is performed by a combination of engineers and CPAs.  In an ideal world, you'd have a team that has both (the engineers are the experts in segregating costs; and the CPA is there to make sure you don't miss any tax issues).

    1Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    9y
    That's awesome, Jason Dillard! But I would definitely say that the $400k figure is relative to your market. Someone with a $400k 3-bed/2-bath in Denver doesn't need a cost seg firm. Their CPA can help them with a basic cost seg on that. But for larger complexes, yes, it definitely makes sense to pay a cost seg engineering firm for their services as it can result in significant tax savings.
    Clarita CPA Group516 Reviews
    WebsiteView Page
    2Reply
  • Yonah WeissPro Member
    Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    Now with the reform of the TCJA 2017 and 100% bonus depreciation, tax benefits in the first year are even more significant.

    4Reply
  • Kenneth Lagana
    Member since 2019 · 3 posts · 0 votes
    7y

    any thoughts on online cost segregation companies that do this and provide a report for a few hundred dollars?

    0Reply
  • Bill S.
    Specialist · Raleigh, NC · Member since 2018 · 28 posts · 21 votes
    7y

    Using a engineering firm directly is the best option. There is a difference in 'engineering-based' and "fully engineered and accounted" methodology in the asset detail and the benefits. Some CPA's outsource to engineering firms, or use sub-contractors to do components. Best to work directly with the engineering firm.

    Yonah is correct too in the 100% bonus offering extra benefit. As per the online solutions, they can work in certain conditions, but they we err to the conservative. It really depends on the property and your objectives.

    1Reply
  • Michael Tal
    Developer · London · Member since 2019 · 45 posts · 33 votes
    7y
    Originally posted by @Kenneth Lagana:

    any thoughts on online cost segregation companies that do this and provide a report for a few hundred dollars?

     I don't see the legitimacy in them as a normal cost segregation process is usually upwards of $10k+

    0Reply
  • Ken Lagana
    Investor · Holmdel, NJ · Member since 2013 · 29 posts · 5 votes
    7y

    Thanks.  If planning to use in a tax situation, conservative seems better.  dont you think? 

    0Reply
  • Bill S.
    Specialist · Raleigh, NC · Member since 2018 · 28 posts · 21 votes
    7y

    Conservative works, though it can leave money on the table. Quality firms will provide asset detail, audit protection and defend their study. On-line modeling does not give the asset detail, thus the err to conservative should an audit occur.

    1Reply
  • Suly B.
    Rental Property Investor · Denver, CO · Member since 2018 · 81 posts · 62 votes
    7y

    @Michael Tal  Check the latest blog post featured on @BiggerPockets: Think Cost Segregation Is Too Expensive? Here's Why You're Wrong! https://hubs.ly/H0hmg630

    1Reply
  • Paul M.
    Medford, MA · Member since 2012 · 163 posts · 36 votes
    6y

    Is this a commercial or residential property?  What % of purchase price was moved into faster depr categories?

    0Reply
  • Brad Hales
    New to Real Estate · FL · Member since 2020 · 11 posts · 3 votes
    5y

    @Logan Allec as an accountant, I assume you may know the answer to this question. Can you can take advantage of cost segregation with multi-family inside a SD Roth IRA?

    2Reply
  • Jason Dillard
    OP
    Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
    5y

    Gotta have debt in a SDRA to create a taxable event.  So unless there is debt, no need.  If you have debt, then a cost seg may make sense.  

    2Reply
  • Prag Patel
    Investor · Atlanta, GA · Member since 2014 · 41 posts · 20 votes
    5y
    If anyone is interested in seeing if cost seg is right for you, PM me for more details.
    0Reply
  • Yonah WeissPro Member
    Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    5y

    @Brad Hales I'll let @Bernard Reisz respond, since he's the expert, but as far as I know, Roth's are not taxable, so the depreciation will not help.

    2Reply
  • Bernard ReiszPro Member
    CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
    5y

    @Brad Hales To understand the answer to question it's important to understand both cost seg and retirement account taxation. 

    Cost seg is simply the art and science of teasing out the individual depreciable components of a multi-component asset. No more, no less. In other words, it's does not represent special tax treatment that an account has to qualify for. So, every taxpayer can use it, so long as they have use for the additional deductions. 

    Retirement accounts are taxpayers, just like individuals. They just have special treatment exempting them from certain chapters of the tax code and subjecting them to others.

    At the risk of stating the obvious, you and your retirement accounts are all separate taxpayers.

    If you invest in a syndication that uses leverage using a retirement account, it will receive a K1reflecting income/loss just like any other investor. Hopefully (but not so likely), Box 20 will provide the info needed for UBIT calculations and filing. 

    [email protected]
    4Reply
  • Bernard ReiszPro Member
    CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
    5y

    @Yonah Weiss Thanks for the mention! You can always be counted upon to indicate both when cost seg WILL and WON'T add value. Kudos!

    [email protected]
    1Reply
  • Sagiv O.
    Real Estate Investor · Austin, TX · Member since 2017 · 69 posts · 16 votes
    8mo

    @Jason Dillard - That's an incredible ROI on your cost seg! For folks reading this thread years later, the landscape has changed quite a bit. While $400k properties were historically the minimum threshold, platforms like room42.io now make cost seg accessible for much smaller residential deals.

    For investors with properties in the $200-400k range who were told "it's not worth it" in the past, it's worth taking a fresh look. The math has changed dramatically - you can now get defensible studies at room42.io for $500-600 instead of $5k+, which opens up cost seg for single-family and small multifamily investors who were priced out before.

    @Yonah Weiss is right that 100% bonus depreciation makes the first-year benefit even more compelling, especially if you're looking to offset W2 income with REPS status.

    0Reply
  • Account Closed
    Investor · Member since 2026 · 2 posts · 0 votes
    7mo

    Hello 2026, this is such a great point, and it's interesting to see how this has played out over nearly a decade. This strategy has become a fundamental profit lever for a huge number of investors since then, turning depreciation into real, upfront capital.

    0Reply
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