Cost Segregation Services Overlook Small Real Estate Investors, Industry Expert Says

The cost segregation industry has long been tailored to institutional investors acquiring multi-million-dollar properties, leaving a gap for smaller real estate investors who could benefit from accelerated depreciation but are often priced out or misadvised. Brian Kiczula, a Real Estate Professional at CostSegRx, notes that most U.S. cost segregation firms structure their fees around large transactions, such as $100 million buildings, and have not adjusted their pricing for smaller deals.

Cost segregation is a tax strategy that breaks down a property into its individual components, allowing shorter depreciation periods—typically five or fifteen years—for assets like exterior improvements, interior fixtures, and specialized equipment, rather than the standard 27.5 or 39 years for the building itself. With bonus depreciation restored to 100%, investors can deduct the entire value of these short-life assets in the first year, offsetting income. However, the high cost of studies has traditionally made this approach impractical for properties valued between $1 million and $15 million, such as Airbnb rentals, small hotels, or RV parks.

Kiczula explains that traditional firms often charge premium prices even for scaled-down studies, which can negate the financial benefit for smaller investors. This pricing dynamic leads CPAs to advise clients against pursuing cost segregation, reinforcing the misconception that it only works for large properties. “I’ve had a lot of tax preparers tell their clients that it doesn’t make sense for them to do a cost segregation study because they only own a certain amount of properties with a basis or a purchase price at a certain level,” Kiczula says.

Contrary to assumptions, smaller properties can contain substantial short-life assets. Properties with resort-style pools, pickleball courts, and extensive exterior site improvements often yield significant accelerated depreciation, even in single residential units used as short-term rentals. RV parks, car washes, and gas stations are particularly asset-rich. However, appearance can be misleading; a large commercial building with minimal interior improvements may produce less benefit than its size suggests.

CostSegRx was founded to serve investors in the lower to mid-range market, offering upfront estimates of benefit so clients can evaluate the return before committing to a full study. The firm uses an engineering-based methodology rather than rule-of-thumb percentages, which Kiczula says fail to account for the actual condition and age of assets and would not withstand an audit.

“We want to make sure there’s a solid return on investment for our clients,” Kiczula says. Every prospective client receives an estimated benefit analysis first, which they can review with their CPA before deciding to proceed. By pricing engagements according to the property’s actual scope, CostSegRx aims to make cost segregation accessible to investors who have been overlooked by traditional firms.