Low basis or small property
On a property with a small depreciable basis, the total acceleration from a cost seg study is modest and may not clear the study fee. Generally, the case for a full engineered study requires a careful cost-benefit calculation on properties with lower basis. Estimate potential first-year savings with the calculator before hiring an engineer.
Selling soon without a 1031
Accelerated depreciation increases recapture exposure at sale. If you plan to sell in the next two to three years without a 1031 exchange, you may accelerate deductions today only to recapture them — potentially at ordinary income rates on 1245 components — in the near future. The time-value benefit shrinks dramatically on short holds.
Suspended passive losses or low bracket
If passive activity rules already limit your ability to use rental losses against other income, more paper losses just pile up suspended. Similarly, if your marginal rate is at or below 25%, the deduction savings and the eventual recapture cost are roughly equivalent — the rate arbitrage largely disappears. Check both before ordering a study.
Frequently asked questions
Is cost segregation always worth it?
No. It works best on higher-basis properties held long-term where the deductions clearly outweigh the future recapture and the study fee.
What is the minimum property value for cost segregation?
There's no fixed rule, but the projected first-year tax savings should clearly exceed the study cost.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.