A cost segregation study for a single-family rental usually costs somewhere between a few hundred dollars and about $3,500, depending on whether it is a desk-based study or an engineer-led study with a site visit. Larger multifamily and commercial buildings run $5,000 to $10,000 or more. Whether that is worth it has less to do with the fee than with one question most people skip: can you actually use the deduction this year?
What does a cost segregation study cost?
Market ranges, roughly:
| Type of study | Typical property | Typical cost |
|---|---|---|
| Desk or software-based study | Single-family rental, condo, small STR | About $500 to $2,000 |
| Engineer-led study with a site visit | Single-family or small multifamily | About $2,500 to $3,500 |
| Engineer-led study | Larger multifamily, commercial, mixed use | $5,000 to $10,000 and up |
Those are typical ranges, not quotes. Price moves with the building’s size and complexity, whether a site visit is needed, and whether the study is a look-back on a property you bought in a prior year.
What do you get for the fee?
A study breaks the building’s cost into its components and reclassifies the ones that are not structural into shorter lives: 5-year and 7-year personal property such as appliances, carpet, window treatments, decorative lighting and certain electrical and plumbing, and 15-year land improvements such as driveways, fencing, landscaping and drainage. The building itself stays at 27.5 years for a residential rental or 39 years for nonresidential. Typical reclassification is 20% to 30% of the building for a long-term residential rental and 25% to 40% for a furnished short-term rental. The IRS publishes a Cost Segregation Audit Technique Guide, and a study built to its standards is what you want in the file if you are ever examined.
How much tax does a cost segregation study save?
Take a $600,000 rental with 25% of the price allocated to land, leaving a $450,000 building. A study reclassifies about 25%, roughly $112,000, into 5, 7 and 15-year property. For property acquired after January 19, 2025, that reclassified portion qualifies for 100% bonus depreciation. First-year depreciation goes from about $16,000 without a study to roughly $124,000 with one. At a 35% bracket, that is around $37,000 less tax in year one. The study paid for itself many times over, but only if the next condition is true.
When is a cost segregation study not worth it?
When the losses cannot be used. Rentals are passive by default, and passive losses only offset passive income. If you earn a W-2 income above $150,000 and you do not qualify as a real estate professional, do not run a short-term rental yourself, and do not have passive income, a study just makes your suspended loss bigger. You paid for a deduction you cannot take yet. The four ways around that are in can rental losses offset W-2 income. I check this before recommending a study, every time.
Two other cases where it often does not pay: a building small enough that the reclassified amount barely moves the needle, and a property you plan to sell within a few years without a 1031 exchange.
Do I pay the depreciation back when I sell?
Partly, unless you plan around it. On a sale, depreciation on the 5 and 7-year components is recaptured as ordinary income under §1245. On the 15-year land improvements, the bonus depreciation above straight-line is ordinary income under §1250 and the rest is taxed at up to 25%, the same as depreciation on the building (unrecaptured §1250 gain). That is why a study is a timing strategy. It pays best when you hold for years, exchange into another property under §1031, or hold until death, when the basis step-up wipes out the recapture. The mechanics are in Section 1231 vs 1245 property.
Can I do a cost segregation study on a property I bought years ago?
Yes. A look-back study on a property placed in service in a prior year does not require amended returns. You file Form 3115 to change your accounting method and take all the missed depreciation as a single catch-up deduction in the current year under §481(a). That catch-up can be large, especially on property bought between late 2017 and 2022, when bonus depreciation was 100%. See Form 3115 catch-up depreciation.
Is a cheap cost segregation study safe?
It depends on what is behind it. A desk-based study that uses the actual closing documents, photos, plans and a defensible methodology can be appropriate for a single-family rental. A rule-of-thumb percentage with nothing behind it is what the IRS audit guide warns about. What matters is whether the study would hold up if the IRS asked how each number was reached.
How I handle cost segregation
I do not refer clients out for the study. It is part of the engagement: I check whether the losses will be usable first, order the right type of study for the property, build the depreciation schedule from it and carry it onto the return, with one fixed fee covering the work. If the losses would be trapped, I will tell you to wait. My general fees are published on what a CPA costs, and the real estate work is on the real estate CPA page.
Thinking about a study on a property you own or are about to buy? Book a call or call (832) 594-0339, and bring the closing statement.
General information under IRC §§168, 469, 1245 and 1250 and the IRS Cost Segregation Audit Technique Guide. Ranges are typical market figures, not quotes. Not advice for your specific situation.