Accountant · Williamstown, NJ · Member since 2025 · 331 posts · 180 votes
A lot of investors are still depreciating everything the slow way and never asking a bigger question:
Is there a faster way to recover some of this cost?
That’s where cost segregation comes in.
Most investors know the building gets written off over time. But what many miss is that some parts of the property may fall into shorter lives like 5, 7, or 15 years instead of sitting in the long 27.5- or 39-year bucket. And when that happens, the deduction can get a whole lot more interesting.
That does not mean every property automatically needs a cost seg study.
It does mean a lot of investors may be leaving money on the table simply because nobody looked closely enough.
I tell people this all the time: tax strategy should support a good deal, not create one. But if the deal is already solid, cost seg can be a powerful tool.
Curious how many investors here have actually run the numbers on cost seg versus just assuming it was only for large properties?
William — I'll answer your question from the practitioner side: I've run the numbers on plenty of small properties, and the gate is almost never property size. It's whether you can use the loss.
A few things that move the "worth it" math more than square footage does:
- Without REPS or the STR rules, rental losses are passive — they only offset other passive income. The $25k active-participation offset phases out between $100k and $150k of MAGI, so a typical W-2 household often gets little or nothing in year one. The deduction doesn't disappear; it just sits suspended. Still useful, but a very different ROI story.
- Since OBBBA restored 100% bonus depreciation for property acquired after Jan 19, 2025 (§168(k)), the year-one benefit for 2025–26 acquisitions is back at full strength — but only if there's taxable income to absorb it.
- The study fee still has to clear its own bar. On a sub-$200k property, the incremental deduction sometimes barely covers a full engineering study. That's the real "too small" threshold — not the property, the fee.
So no, it was never only for large properties. It was always only for people who could use the loss. Worth running by your CPA with your actual income picture.