Why Many Real Estate Investors Miss Out on Cost Segregation—and What It Costs Them
Many real estate investors fail to benefit from cost segregation because their CPAs never mention it, often due to outdated assumptions about cost or a knowledge gap, potentially costing thousands in missed tax savings.
A significant number of real estate investors are missing out on substantial tax savings through cost segregation simply because their tax preparers never bring it up. According to Brian Kiczula, principal at CostSegRx, this oversight stems from a combination of outdated cost assumptions and a lack of specialization among CPAs.
Historically, cost segregation studies were expensive—often costing thousands of dollars—making them impractical for smaller properties. As a result, many CPAs defaulted to straight-line depreciation across the entire asset and never updated their approach. However, Kiczula notes that engineering-based studies can now be conducted cost-effectively on smaller residential properties. “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,” he says.
Beyond cost, a knowledge gap persists. Many tax preparers are not deeply familiar with real estate investment strategies, or their real estate clients represent a small portion of their book. “They’re not investor-friendly CPAs, or they’re not well versed in real estate,” Kiczula explains. This does not make them bad CPAs, but it means investors may need to initiate the conversation themselves.
Kiczula advises a deliberate approach: obtain a free estimate of benefit first, then present it to your CPA for review before committing to a full study. “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 approach respects the fact that the usefulness of accelerated depreciation depends on whether an investor generates active or passive income and can utilize the losses.
If a CPA still pushes back, Kiczula suggests evaluating the basis of the objection. If the CPA genuinely concludes the study is not a fit—for instance, if the investor plans to sell soon and face depreciation recapture—Kiczula often agrees. “I don’t mind canceling proposals,” he says. “I don’t want to, but it’s part of the business.” However, if the objection stems from unfamiliarity rather than a thorough analysis, a second conversation may be warranted.
For investors considering cost segregation, CostSegRx offers complimentary estimates of benefit with no obligation to proceed. The firm, led by Kiczula, provides engineering-based studies for residential and commercial real estate investors nationwide.