Cost Segregation: Why Your CPA May Not Have Told You About It and What to Do

Many real estate investors who could benefit from cost segregation have never heard about it from their tax preparer. Some were told it was not worth it for their property, while others had CPAs who simply did not bring it up. The result is years of straight-line depreciation on assets that could have generated tax savings from day one. CostSegRx principal Brian Kiczula sees this pattern consistently and attributes it to two main factors: the historical expense of such studies and a knowledge gap among some tax professionals.

Cost segregation studies used to cost thousands of dollars, making them impractical for smaller properties. CPAs managing modest residential portfolios defaulted to straight-line depreciation, and that approach stuck. However, 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.” What has changed is that these studies are now affordable, but many CPAs have not updated their recommendations because their clients never pushed them.

Beyond cost, Kiczula points to a knowledge gap. Some tax preparers are not deeply familiar with real estate investment strategies or have too few real estate clients to make cost segregation a specialty. “They’re not investor-friendly CPAs, or they’re not well versed in real estate, or maybe their clients own real estate but don’t own enough of it for that to be an option they’re offering,” he says. That does not make them bad CPAs, but it means the investor may need to bring the topic to the table themselves.

The recommended approach is deliberate: get a free estimate of benefit first, then take it to your CPA for review. “I’m not saying to get a cost segregation study done and then take it to your tax professional,” Kiczula says. “I’m saying get an estimate done and then see how the benefits might apply to your specific situation.” This approach allows the CPA to evaluate actual numbers and respect the fact that whether the depreciation helps depends on the investor’s tax picture, specifically active versus passive income and the ability to use the losses.

If a CPA still pushes back, Kiczula advises a measured stance. If the CPA genuinely concludes it is not a fit—for example, if the investor plans to sell soon and face depreciation recapture, or cannot use the losses—he 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 is based on unfamiliarity rather than a genuine analysis, getting an independent estimate puts real numbers on the table. CostSegRx offers complimentary estimates of benefit with no obligation to move forward.