Many Real Estate Investors Missing Out on Cost Segregation Tax Savings, Expert Says

Many real estate investors who could benefit from cost segregation have never heard about it from their tax preparer, according to Brian Kiczula, principal of CostSegRx. Some were told it was not worth it for their property, while others had CPAs who simply did not bring it up. The result, Kiczula says, is years of straight-line depreciation on assets that could have been generating tax savings from day one.

Historically, cost segregation studies were too expensive for smaller properties, costing thousands or even tens of thousands of dollars. For CPAs managing clients with modest residential portfolios, recommending a study that cost more than the benefit it produced was not good advice. So the default became straight-line depreciation across the entire asset, and that default stuck. Many CPAs never updated their thinking because their client base never pushed them to.

What has changed is that engineering-based studies can now be conducted cost-effectively on smaller residential properties. Kiczula emphasizes the distinction: “I’m not talking about a DIY cost seg study or an online calculation. I’m talking about an engineered study where someone is looking at the property and providing an accurate study back.”

Beyond cost, Kiczula points to a knowledge gap. Some tax preparers are simply not deeply familiar with real estate investment strategies, or their real estate clients represent a small enough portion of their book that cost segregation never became a specialty. “They’re not investor-friendly CPAs, or they’re not well versed in real estate,” he says. That does not make them bad CPAs, but it means the investor may need to bring the topic to the table themselves.

Kiczula recommends a deliberate approach: get a free estimate of benefit, take it to your CPA, and let them review it against your specific tax situation before committing to anything. “I’m not saying to get a cost segregation study done and then take it to your tax professional,” he says. “I’m saying get an estimate done and then see how the benefits might apply to your specific situation.” This removes friction from the conversation and respects that whether the depreciation actually helps depends on the investor’s tax picture, specifically whether they generate active or passive income.

If a CPA looks at the numbers and genuinely concludes it is not a fit, Kiczula often agrees. He has archived proposals in cases where the study would not serve the client well, including situations where the investor was planning to sell the property soon and would face depreciation recapture, or where the investor simply could not use the losses. However, if the CPA’s objection is based on unfamiliarity with cost segregation rather than a genuine analysis, that is worth a second conversation. Getting an independent estimate puts real numbers on the table.

CostSegRx offers complimentary estimates of benefit with no obligation to move forward. The firm is an engineering-based cost segregation firm led by Kiczula, a member of the American Society of Cost Segregation Professionals.

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