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.

[Chris Watson]

I had cost segs done on all my properties last year.  Due to them being in two primary locations the price was economical including the site visit.  Why all? 

1. It is cheaper to do all at once.

2. Just because it was done this past year doesn't mean I have to utilize it right away.

3. It gives my CPA several options when developing my tax filing strategy for each year depending on the current tax law environment.

4. I plan my tax strategy for +3 yrs out.  No need to worry about paying taxes if you plan properly. 

5. It also relieves the pressure to find "this year's" write off. I make acquisition or developments based on fundamentals not "needed write off/depreciation".