Is a cost segregation worth it?

Question

I currently have 4 properties, 2 SFH and 2 duplex, that we have been renting since 2023. Initially these loans were in my personal name, and now as of 3/2025 are now in our LLC where we consolidated into a commercial loan to pull out equity. The initial purchase of these properties in 2023/2024 was 569k. When we consolidated these 4 units, appraisals were done and totaled 725k across the units.

We have not used depreciation yet, only bc we needed to get my wife into the real estate professional role(REP), which was done in 2024.

I have a W-2 job as well as 1099 work that I have not placed into an LLC/Scorp yet(this is coming). We have a decent amount of tax liability for 2024, we had been holding on cost seg, bc of the REP and the status of bonus depreciation in Congress.

We have done some work to the properties, roof and windows in the duplexes, and flooring and basement drainage in the SFH.

I know that with cost seg these can be costly, so I am trying to get a feel for if this is worth it to pull the trigger to reduce our tax liability and maybe even get some return to reinvest. Curious of the thoughts of the brain trust.

Matt

Gregory Wilson · Answer

I see it as important to consider the amount of shelter that gets the best result. If you have 125k of income to shelter and cost segregation gets you a 100k deduction, that is too much because you are essentially losing the benefit of your personal standard or itemized deductions and exemptions down to the baseline and reducing the carry forward losses.

The renovations you described are really just repairs because they do not expand the use or productivity of the properties. They are just deductible repairs and if you paid them in 2024 you are better off to deduct them as opposed to capitalizing them.

Some tax preparers mistakenly think that an repair like a roof or a floor is capital item because it costs a lot. Not so.

Malik Javed · Answer

Some companies offer DIY cost segregation options, which can be much cheaper than a full blown cost segregation. Just be sure you fully understand the process to avoid any mistakes.

When picking a firm, make sure to go with a reputable one. A great place to start is www.ascsp.org, where you can find certified companies.

If you're choose to hire someone to do the cost seg for you, definitely check out the credentials of the person doing the study. Look for the Certified Cost Segregation Professional (CCSP) designation, which means they’re certified by the American Society of Cost Segregation Professionals. You’d want someone as trustworthy as a CPA for your taxes!

https://www.biggerpockets.com/forums/51/topics/1206189-cost-...

Feel free to reach out if you have any questions.

Andrew Syrios · Answer

Usually when I hear about people doing cost segregation, it's on larger properties. On big apartments and commercial properties I think it's absolutely worth it. On SFH and duplexes, I'm not really sure tbh.

Julio Gonzalez · Answer

Your property has the potential to benefit from a cost segregation study, but there are many variables to consider.

Would you have net income or net loss without the cost seg study? Are your real estate investments active or passive? Are your losses locked up against your passive income?

Have you obtained any detailed cost/benefit analysis quote? Most cost segregation study companies provide the quote for free. Is it a reputable company and will the documentation provided from the study hold up in an audit? If you need any help or have any questions, feel free to reach out!

Matthew Waggoner · Answer

Thanks Julio,

as far as I understand it, we can create additional passive losses from real estate that can be transferred to the income that I received on 1099 because of my wife. At the end of the day we will still have about 330k of household income(1099, W-2, and LLC) without cost seg. That is my problem and why spending even 20k to generate potential of 100k in immediate loss could be very helpful. Obviously I need to get a reputable assessment and weigh the options. I appreciate all the help in this forum.

Matthew Waggoner · Answer

She previously worked for a company, W-2 job. Now she essentially "works" within the company. We had to get our finances set and still make sure she qualified for the designation by accruing over 750hrs and more than 50% in the business.

And yes, the depreciation will create passive losses that I can use to offset my income.

i hope this clarifies.

Dan Hawtree · Answer

"We have not used depreciation yet, only bc we needed to get my wife into the real estate professional role(REP), which was done in 2024."  Do you mean that the depreciation has created passive losses which you can't deduct?

Curious, what role will make your wife a qualified r/e pro?

I may be able to provide an insightful opinion with the answers to these two questions.

Is a cost segregation worth it?

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