Cost segregation, a tax strategy that accelerates depreciation on certain building components, remains underutilized among real estate investors, often because their CPAs never bring it up. According to Brian Kiczula, principal at CostSegRx, many investors who could benefit have never heard of it from their tax preparer, or were told it was not worth it. The result is years of straight-line depreciation on assets that could have generated tax savings from day one.
Historically, cost segregation studies were expensive, often costing thousands or tens of thousands of dollars, making them impractical for smaller properties. CPAs adapted by defaulting to straight-line depreciation, and this practice persisted even as costs declined. Kiczula explains, “It used to be too expensive, and CPAs adapted accordingly.” However, engineering-based studies can now be conducted cost-effectively on smaller residential properties. These are not AI-generated reports or online calculators, but detailed studies where someone looks at the property. “I’m talking about an engineered study where someone is looking at the property and providing an accurate study back,” Kiczula emphasizes.
Another reason cost segregation is not widely recommended is that not all CPAs specialize in real estate. Some tax preparers lack deep familiarity with investment strategies, or their real estate clients represent a small portion of their practice. “They’re not investor-friendly CPAs, or they’re not well versed in real estate,” Kiczula says. That does not make them bad CPAs, but it means investors may need to bring the topic to the table themselves.
Kiczula advises investors to approach their CPA with a free estimate of benefit, not a completed study. “I’m not saying to get a cost segregation study done and then take it to your tax professional. I’m saying get an estimate done and then see how the benefits might apply to your specific situation,” he says. This approach allows the CPA to evaluate actual numbers and ensures the depreciation will be useful based on the investor’s active or passive income situation.
If a CPA still pushes back, Kiczula takes a measured stance. If the CPA genuinely concludes the study is not a fit—due to an upcoming sale triggering depreciation recapture or inability to use losses—he often agrees. “I don’t mind canceling proposals,” he says. However, if the objection stems from unfamiliarity with cost segregation rather than a genuine analysis, a second conversation with an independent estimate may be warranted. CostSegRx offers complimentary estimates of benefit with no obligation.
