Real estate has always been about cash flow. But here’s what most investors miss: the biggest cash flow opportunity isn’t in raising rents or cutting expenses — it’s sitting in the tax code, waiting for anyone smart enough to use it.
Cost segregation changes everything about real estate investing. This isn’t a loophole or risky accounting tactic. It’s been part of the IRS tax code for decades, yet most investors have never heard of it. The ones who have? They’re keeping more money in their pockets while others overpay their taxes.
What Cost Segregation Really Means for Your Properties
The IRS says you depreciate residential properties over 27.5 years and commercial properties over 39 years. That means if you bought a $500,000 apartment building, you’d get about $18,000 in annual depreciation. Not bad, right? Wrong.
That same building contains assets — carpeting, appliances, landscaping, parking lots, certain electrical and plumbing — that can be depreciated in 5, 7, or 15 years. By accelerating these deductions, you unlock immediate, significant tax savings.
A cost segregation study from SegPro Solutions typically identifies 20–40% of a property’s value eligible for accelerated depreciation. On that $500,000 property, that could mean $100,000–$200,000 in first-year deductions.
The Mathematics of Wealth Building Through Tax Savings
If you’re in the 35% tax bracket, a standard depreciation schedule saves about $6,300 in taxes annually. With cost segregation, that same property could save you $35,000–$70,000 in year one alone.
The difference becomes working capital — funds you can use to acquire more properties, renovate, or invest elsewhere. Applied across multiple properties, the savings can reach hundreds of thousands of dollars.
Why Most Investors Never Hear About Cost Segregation
Many CPAs follow standard depreciation because it’s easier. Property managers, agents, and even seasoned investors may not mention cost segregation because of its complexity. But every year you wait is money lost.
When Cost Segregation Makes You Money
Cost segregation works best for properties over $500,000, but properties as low as $250,000 can still benefit. Newer properties or those with recent renovations yield higher returns. Commercial properties in California and across the U.S. — including apartments, retail centers, and industrial spaces — often deliver the largest savings.
Even if you’ve owned the property for years, you can “catch up” through a Section 481(a) adjustment without amending prior returns.
The Hidden Benefits Beyond Tax Savings
In addition to tax savings, you gain a detailed property component breakdown, valuable for insurance, management, and ROI reporting. Cost segregation can also make your investment returns more appealing to lenders and partners.
Taking Action on Your Properties
The process begins with a free estimate of potential tax savings. A professional study — typically costing $5,000–$15,000 — can deliver returns many times greater than the investment. Most clients recoup their cost in the first year.
Wealth is built by keeping more of what you earn. The remote cost seg process makes it faster and easier than ever to unlock these benefits.
Frequently Asked Questions
How much does a typical cost segregation study cost?
Residential rental property studies typically range from $5,000 to $8,000, while larger commercial properties range from $10,000 to $15,000. Most investors see returns of 10:1 or higher in year one.
Can I perform cost segregation on a property I’ve owned for years?
Yes. The IRS allows a look-back study using Section 481(a) adjustments to claim all missed depreciation in the current year.
What happens to accelerated depreciation if I sell?
You may face depreciation recapture taxed up to 25%. However, using a 1031 exchange can defer this indefinitely.
Will cost segregation trigger an IRS audit?
When conducted by a qualified cost segregation company following IRS guidelines, the risk is no greater than with other standard tax strategies.
Which properties benefit most?
Properties with significant personal property and site improvements, such as apartments, hotels, medical facilities, and manufacturing plants, generally see the best results.
Ready to see how much you could save? Contact SegPro Solutions today for your free cost segregation estimate.
