Most real estate investors trust their CPA to flag the strategies that apply to them. Cost segregation, for a significant number of those investors, has never come up. Brian Kiczula of CostSegRx sees this regularly, and he does not blame the CPAs entirely. The explanation goes back further than most investors realize.
Why the Default Became Straight-Line Depreciation
Cost segregation studies used to be expensive enough that recommending one on a smaller property was often bad advice. The cost of the study could outweigh the benefit it produced, so tax preparers managing residential investors defaulted to straight-line depreciation and moved on. For their clients at the time, that was probably the right call.
What changed is that detailed engineering-based studies are now accessible at price points that work for smaller properties. The key word is engineering-based. Kiczula draws a hard line between those and the automated tools that have proliferated alongside them: “I’m not talking about a DIY cost seg study or an online calculation. I’m talking about an engineered study where someone is looking at the property and providing an accurate study back.”
The default has not caught up with the market. Many CPAs who could be recommending cost segregation to their real estate clients are still operating with assumptions that no longer hold.
The Specialization Problem
There is also a simpler factor. Real estate investing is a specialty. CPAs who do not focus on it, or whose investor clients represent only a slice of their practice, may not stay current on strategies like cost segregation. As Kiczula puts it, they may not be “investor-friendly CPAs” or they may just not have enough real estate clients for it to become a regular part of what they offer.
That is not a reason to change CPAs. It is a reason for the investor to come prepared.
Bringing It Up Without Derailing the Relationship
The move Kiczula recommends is to lead with an estimate, not a study. Get a complimentary estimate of benefit from a cost segregation provider, take it to your tax preparer, and let them assess whether the numbers work for your specific situation before anyone commits to anything.
This matters because whether cost segregation actually helps you depends on your tax picture. Active versus passive income, your plans for the property, your ability to use the depreciation losses, all of that needs to be evaluated by someone who knows your full situation. The estimate starts that conversation on solid ground.
What Happens If They Still Say No
Kiczula has been in situations where the CPA was right. Investors planning to sell in the near term, for instance, face depreciation recapture that can offset the benefit of accelerating depreciation in the first place. When the math does not work, he says so and walks away from the engagement.
But when a CPA’s reluctance comes from unfamiliarity rather than analysis, having a real estimate in hand changes the dynamic. It moves the conversation from abstract to specific, and gives both parties something concrete to work from.
About CostSegRx: CostSegRx is an engineering-based cost segregation firm led by Brian Kiczula, a member of the American Society of Cost Segregation Professionals. The firm works with residential and commercial real estate investors nationwide. CostSegRx provides complimentary estimates of benefit and supports investors and their CPAs through the full reporting process. Learn more at costsegrx.com or call (888) 850-4155.
Disclaimer: This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.