Cost segregation studies, once the domain of institutional investors purchasing $100 million properties, are now being tailored to smaller real estate investors, according to Brian Kiczula, a Real Estate Professional at CostSegRx. The firm is targeting investors in the $1 million to $15 million range, including Airbnb owners, small hotel buyers, and RV park operators, who often either overpay for studies sized for much larger deals or skip them entirely, leaving tax benefits unclaimed.
Cost segregation breaks a property into its individual cost components so that short-life assets – such as exterior site improvements, interior fixtures, and specialized equipment – can be depreciated over 5 or 15 years rather than the standard 27.5 or 39 years. With bonus depreciation back at 100%, investors can pull forward all short-life asset depreciation into year one, offsetting active or passive income depending on their tax situation.
The firms that perform these studies, Kiczula says, designed their workflows and fee structures around large transactions and never adjusted them downward. “Historically, cost-segregation studies were very expensive, and most cost-segregation firms in the United States cater towards larger investors – your clients that are buying the $100 million building,” Kiczula says. “I saw that there was a real need for clients that were investing in residential real estate, your Airbnb clients, your investors that are buying small hotels for $5 million.”
The issue is not that smaller properties lack depreciable assets. It is that study fees remain high enough to erase the return on investment for properties at lower purchase prices. When a traditional firm analyzes a $4 million Airbnb or a $6 million mobile home community, Kiczula says, it often applies pricing designed for far larger engagements. “The companies that are out there are still charging the same premium prices for a much scaled-down study,” he says.
This pricing dynamic shapes how CPAs advise their clients. When the study costs more than the tax savings it produces, advisors reasonably tell investors not to bother. Over time, that advice hardens into conventional wisdom: cost segregation doesn’t work for smaller investors. Kiczula says that belief is often wrong. “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. “Individuals can get studies that are affordable to make the return on investment beneficial for them.”
Investors and their advisors often assume a $750,000 short-term rental or a small RV park won’t have enough short-life assets to justify the cost of a study. Kiczula says the opposite is frequently true. Properties with resort-style pools, pickleball courts, and extensive exterior site improvements carry substantial accelerated depreciation – even single residential properties used as short-term rentals. RV parks consistently surprise clients with how much qualifies. Car washes and gas stations are similarly asset-rich. The common thread: significant exterior improvements and specialized equipment that qualify as 5-year or 15-year property rather than depreciating over the building’s full life.
Kiczula notes that appearance can mislead in both directions. A 60,000-square-foot commercial building might contain little beyond basic warehouse space – cheap vinyl flooring, fluorescent lighting – yielding far less accelerated depreciation than its square footage suggests.
CostSegRx was built to serve the investors up to the $15 million range segment directly. The firm provides upfront estimates of benefit so clients can evaluate the return before committing to a full study. “We want to make sure there’s a solid return on investment for our clients,” Kiczula says. He describes a process in which every prospective client receives an estimated benefit analysis first, which they review with their CPA or tax preparer before deciding whether to proceed.
Kiczula also distinguishes the firm’s engineering-based methodology from rule-of-thumb approaches – online calculators or percentage-based estimates that generate reports in minutes without examining a property’s individual assets. Those approaches, he says, fail to account for the actual condition and age of components like parking lots or HVAC systems, and would not hold up under audit. “The rule of thumb percentages just don’t take into consideration the attributes of the assets that you acquired,” Kiczula says.
For investors in this segment, the decision hinges on whether the study’s cost leaves enough room for the tax savings to matter. Kiczula’s argument is that it can – provided the firm performing the work prices the engagement to match the property’s actual scope rather than defaulting to institutional rates. Learn more at costsegrx.com.
