Cost segregation studies - When they're worth it and when they're not:

[Mohamed Youssef]

Cost segregation can dramatically accelerate depreciation and tax benefits, but I've seen investors waste money on studies that delivered minimal value. Let me share what I've learned about when they truly make sense.

The clearest wins come with:
- Properties purchased (not inherited) within the last 5 years
- Commercial or larger multifamily with substantial improvements
- Assets you plan to hold for at least 3-5 years
- Purchase prices exceeding $1 million
- Properties with significant non-structural components

I recently reviewed a case where an investor spent $4,000 on a cost segregation study for a $950,000 duplex constructed in 1978. The resulting first-year tax benefit was approximately $8,200 due to passive loss suspension rules. Not worth the cost of the study since it did not accelerate the regular 27.5-year depreciation.

By contrast, another investor's $12,000 study on a recently renovated $3.8M office building yielded first-year additional deductions worth over $120,000 in tax benefits - a clear home run.

The quality of the engineering team matters tremendously. The best studies involve on-site inspection and photographic documentation rather than just plan reviews and assumptions.

[Sean Graham]

Quote from @Mohamed Youssef:

Cost segregation can dramatically accelerate depreciation and tax benefits, but I've seen investors waste money on studies that delivered minimal value. Let me share what I've learned about when they truly make sense.

The clearest wins come with:
- Properties purchased (not inherited) within the last 5 years
- Commercial or larger multifamily with substantial improvements
- Assets you plan to hold for at least 3-5 years
- Purchase prices exceeding $1 million
- Properties with significant non-structural components

I recently reviewed a case where an investor spent $4,000 on a cost segregation study for a $950,000 duplex constructed in 1978. The resulting first-year tax benefit was approximately $8,200 due to passive loss suspension rules. Not worth the cost of the study since it did not accelerate the regular 27.5-year depreciation.

By contrast, another investor's $12,000 study on a recently renovated $3.8M office building yielded first-year additional deductions worth over $120,000 in tax benefits - a clear home run.

The quality of the engineering team matters tremendously. The best studies involve on-site inspection and photographic documentation rather than just plan reviews and assumptions.

Quality absolutely matters. Agreed. 

There are less expensive options for a duplex cost segregation study though!