Apartment investors undertaking value-add renovations may be leaving thousands of dollars in tax deductions on the table due to poor documentation of renovation costs, according to cost segregation specialists. The issue stems from a common gap in how contractors invoice and how property owners record expenses during unit renovations.
When an investor buys a 20-unit apartment building and spends $500,000 on renovations over two years, the tax treatment of those costs can dramatically affect returns. While many investors have completed a cost segregation study on their original purchase, they often fail to properly track the renovation phase, which generates an entirely separate category of depreciable activity.
Brian Kiczula, founder of CostSegRx, a cost segregation firm based in Sarasota, Florida, explains that renovations create deductions on both sides of the ledger. New assets installed qualify for accelerated depreciation, but the removed assets also carry remaining undepreciated value that can be written off through a partial disposition in the year they are removed.
“That’s one of the reasons a cost segregation study is so powerful for value-add investors,” Kiczula says. However, capturing both deductions requires knowing exactly what was removed and what was installed, which is where most investors fall short.
The typical scenario involves a contractor submitting monthly invoices with lump sums—$10,000 for work completed—without itemizing individual components. That lump sum is then recorded as a single capital improvement line item. Kiczula notes that most invoices he receives are handwritten notes with a single total and no breakdown. “We’re having to piece it together after the fact,” he says.
The consequence is that short-life assets qualifying for five-year accelerated depreciation—such as removable flooring, appliances, and decorative lighting—get buried in the general renovation line item and depreciate over 27.5 years instead. The investor still claims the deduction, but over a period five times longer than necessary.
The fix is procedural and inexpensive. At the start of a renovation, property owners should set up a shared spreadsheet and require monthly itemization: what was removed from each unit, what was installed, and the cost of each line item. Kiczula recommends establishing this standard operating procedure at the beginning of the job. “If you let it slip, you’re never going to get it back,” he says.
For investors who have already completed renovations without detailed documentation, the situation is recoverable but more expensive. Cost segregation firms can reconstruct cost estimates using industry data, but some short-life assets will inevitably go unaccounted for, reducing the full tax benefit.
Kiczula emphasizes that apartment renovation is not just a capital improvement play. When structured correctly with a cost segregation study and proper documentation, it is a depreciation strategy that generates deductions on both installed and removed assets. The investors capturing the full benefit are not deploying a more sophisticated tax strategy—they are keeping better records.
For property owners and contractors alike, the message is clear: detailed documentation at the unit level, including specific costs for each removed and installed item, is essential to maximize depreciation benefits and avoid leaving thousands of dollars on the table.
