Cost segregation, a tax strategy that accelerates depreciation on building components, has long been associated with large commercial real estate deals. However, a new player in the market, CostSegRx, is challenging this status quo by targeting investors in the $1 million to $15 million range, a segment that has been largely overlooked by traditional cost segregation firms.
Brian Kiczula, a Real Estate Professional at CostSegRx, says the industry's pricing model is built for institutional investors purchasing $100 million properties. This leaves smaller investors—Airbnb owners, small hotel buyers, and RV park operators—with two unappealing options: overpay for studies sized for much larger deals or skip them entirely, leaving valuable tax benefits on the table.
Cost segregation works by breaking a property into its individual cost components, allowing short-life assets such as exterior site improvements, interior fixtures, and specialized equipment to be depreciated over 5 or 15 years instead of the standard 27.5 or 39 years. With bonus depreciation currently at 100%, investors can accelerate all short-life asset depreciation into year one, offsetting active or passive income depending on their tax situation.
The problem, Kiczula explains, is that traditional firms have not adjusted their fee structures for smaller projects. “Historically, cost-segregation studies were very expensive, and most cost-segregation firms in the United States cater towards larger investors – your clients that are buying the $100 million building,” he says. “I saw that there was a real need for clients that were investing in residential real estate, your Airbnb clients, your investors that are buying small hotels for $5 million.”
This pricing disconnect has real consequences. When study fees are too high relative to the tax savings, CPAs often advise clients against pursuing cost segregation. Over time, this advice becomes conventional wisdom, leading many to believe the strategy doesn’t work for smaller investors. Kiczula argues this belief is often wrong. “I’ve had a lot of tax preparers tell their clients that it doesn’t make sense for them to do a cost segregation study because they only own a certain amount of properties with a basis or a purchase price at a certain level,” he says. “Individuals can get studies that are affordable to make the return on investment beneficial for them.”
Contrary to common assumptions, smaller properties can contain substantial short-life assets. Properties with resort-style pools, pickleball courts, and extensive exterior site improvements carry significant accelerated depreciation—even single residential properties used as short-term rentals. RV parks, car washes, and gas stations are also asset-rich, with exterior improvements and specialized equipment qualifying for faster depreciation. Kiczula notes that appearances can be deceiving: a 60,000-square-foot commercial building might have little beyond basic warehouse space, yielding far less accelerated depreciation than its size suggests.
CostSegRx has structured its approach to serve investors in the $1 million to $15 million range directly. The firm provides upfront estimates of benefit, allowing clients to evaluate the potential return before committing to a full study. “We want to make sure there’s a solid return on investment for our clients,” Kiczula says. Every prospective client receives an estimated benefit analysis, which they can review with their CPA or tax preparer before deciding to proceed.
Kiczula also emphasizes the importance of an engineering-based methodology over rule-of-thumb approaches. Online calculators or percentage-based estimates that generate reports in minutes without examining a property’s individual assets fail to account for the actual condition and age of components like parking lots or HVAC systems, and would not hold up under audit. “The rule of thumb percentages just don’t take into consideration the attributes of the assets that you acquired,” he says.
For investors in this segment, the decision to pursue cost segregation hinges on whether the study’s cost leaves enough room for the tax savings to matter. Kiczula’s argument is that it can—provided the firm performing the work prices the engagement to match the property’s actual scope rather than defaulting to institutional rates.
