What type of labor and tools are used in cost segregation the most?

Cost segregation firms are using various types of tools and labor to complete studies. Our survey reveals how firms are getting cost segregation studies done and what you can do to improve your process.

CPAs are doing cost segregation studies in different ways. Our recent survey reveals exactly how most firms are doing cost segregation work, including the tools they use and the people they hire. In this article, we’ll dive into our survey results and what they show about how CPA firms can do cost segregation better.

cost segregation

Tools firms are using in cost segregation studies

First, let’s examine the tools that firms are using to do cost segregation. Most of the cost segregation work reported to us is still done manually, with either Excel-based tools, homegrown software systems, or a patchwork of both. 

Excel: 47.1% of CPAs are setting up Excel templates where they can collect and/or plug client information into, then (ideally) using pre-built formulas to crunch the numbers for cost segregation studies. These will need to be thoroughly double-checked for errors and accuracy, as this method is highly prone to mistakes. 


Software: Only 11.8% of firms are using either homegrown or vendor-purchased custom software to aid in the completion of cost segregation studies. Ideally, a good software program will automate much of the number crunching and help CPAs collect the client information they need through easy-to-use and shareable forms. 

Both: 41.2% of firms are patchworking a combination of software and Excel. This could look like using a custom-built form software to collect information from clients, and then importing that information into an Excel spreadsheet to run the calculations. This might be better than just using Excel but isn’t as efficient as doing it all in one system. 

Our take: Giving highly-skilled employees such as CPAs and engineers only basic tools to work with can hamper their work. They will be slowed down by doing basic data entry work in Excel when using a better system could speed up the process and allow them to get more done in less time.

cost segregation studies

The labor firms are using complete cost segregation studies

When considering labor, we think about whether or not firms use in-house employees or contractors if they’re outsourcing their work or taking in outsourced work from other firms, and what types of people they’re hiring to do cost segregation work. 

Full-time employees vs contractors: Almost all of the firms we surveyed do their cost segregation studies with in-house employees and don’t hire temporary contractors. It seems more commonplace to just outsource work to other firms rather than hire temps. That’s likely because of the highly skilled nature of cost segregation work. 

The firms we surveyed averaged seven employees dedicated to doing cost segregation work full-time. Some had no employees working on it full time, while others had as many as 45 full-time cost segregation employees. The median average was three. 

Accepting outsourced studies from other firms: 48% of the firms we surveyed completed cost segregation studies that other firms outsourced to them. This can be a good revenue source for firms that have either the labor or streamlined tools—like automated software—to help them complete more studies in less time

Preferred backgrounds for cost segregation employees: Having a construction background was the most preferred type of cost segregation employee, followed by mechanical and civil engineering. Less firms preferred architecture or appraisal backgrounds. This is likely because the nature of cost segregation work requires lots of knowledge of building materials, measurements, and reasonable estimates—which are all best learned on the job.

cost segregation real estate

How digital transformation can push cost segregation forward

Most of the issues with cost segregation stem from inefficient tools and processes. The labor isn’t necessarily the issue, it’s the fact that employees can’t complete studies with the poor tools and processes. Firms are investing in more labor, but the tools are what’s broken. 

Cost segregation is ripe for digital transformation. By using a tool like SegStream, you could reduce the time it takes to complete a study from weeks to a couple of days. Once you have your client’s information, it only takes a few hours to complete an automated study that matches or exceeds the quality you would get from doing it in Excel. 

Digital transformation—i.e. automating the slow and manual parts of the process—opens up the door to complete more studies, take on more clients, and significantly grow your business.

Interested in seeing SegStream in action? Schedule a free live demo and see how it works.

The top cost segregation challenges and how to overcome them

CPA firms that do cost segregation share many of the same challenges, but they don’t communicate with or learn from each other. Learn from our cost segregation survey what the top challenges are and how to overcome them.

Many CPAs are facing the same challenges around cost segregation, but they wouldn’t know it because firms don’t communicate with each other. There is an opportunity for CPAs to learn and grow from learning about the challenges others face, and how they overcome them.

Our cost segregation survey revealed insights into the top challenges in the cost segregation industry and what firms are doing to overcome them.

cost seg study

The top four challenges in the cost segregation industry

According to our survey of dozens of CPA firms that complete cost segregation studies, the following four challenges were repeated the most. 

  1. Getting information from clients

Cost segregation studies require a wealth of information to complete accurately. CPAs face the challenge of both knowing exactly what information to gather down the last detail, but also getting that information from clients. Once this information is gathered, it’s all downhill from there, but this is often the hard part. 

  1. Finding new clients

There’s a large market for cost segregation, although breaking into it can be hard. Networking and referrals and often the top way that CPAs get new clients, but referrals aren’t always a reliable way to gain new clients. Other marketing strategies should be explored. 

  1. Not enough labor 

Once they do find enough clients, firms often struggle with finding qualified engineers and CPAs to complete the studies. This is largely because they’re using manual and time-consuming methods to complete the work, which automated solutions can help with. 

  1. Setting the price

There’s a lack of transparency around cost segregation pricing, as firms don’t know what their competition is charging. To help shed some light on this, we also surveyed CPAs on how much they’re charging to give firms an idea of what the right price might be.

cost seg

How these challenges are hurting CPA firms

These challenges hurt CPA firms in many ways, all of which result in lost profits. The ways they’re getting hit the hardest include:

Cost segregation studies take too long: Not getting information and lacking labor to get studies done quickly is dragging out the process, which hurts profits.

They are losing business to competitors: Lack of price transparency or simply not having the staff to take on more projects leads to competitors sweeping in to pick up the slack. 

They aren’t able to grow beyond their current capacity: Again, lack of labor limits the ability for cost segregation firms to grow, which is why they should look into automating some of that work. 

They’re working longer hours: Another symptom of not having enough labor and using inefficient processes is longer hours during an already busy tax season. 

Sometimes they aren’t getting paid: When studies don’t get completed, CPAs don’t get paid. For example, if a firm was planning to complete a study before the end of the tax season, but isn’t able to because of lack of information and labor needed to complete it, they probably won’t get paid for the work they put in.

cost segregation for dummies

What’s working well? How firms are overcoming these challenges

It’s not all bad news, certain tools and processes are helping CPA firms overcome the common challenges of cost segregation—and coming out the other side with higher profits and happier clients and employees. 

Standardized processes: Creating a single method that works and sticking to it is helping firms get more studies done faster. When there are opaque or no standard operating procedures, it slows down the process. 

Templates and software: Having a template or software in place can greatly reduce the time it takes to gather information from clients and complete the accounting side of the work. This is much better than forcing yourself or employees to “figure it out” anew for each study. 

Streamlining and automation: The cost segregation process is ripe for automation. No longer do CPAs need to hire engineers to gather every detail and spend countless hours crunching numbers. Tools like SegStream can aid in the information-gathering process and crunch the numbers for you, without sacrificing quality. This can help firms do more studies in less time, which further increases profits. 

real estate cost segregation

It’s not about headcount, but the tools you use to get studies done

There’s no doubt that more headcount will help you complete more studies, but you should equip employees with the tools to do cost segregation faster and more efficiently. By automating the work normally done in Access or Excel, SegStream can increase your cost segregation efficiency while reducing the need to hire more staff. It’s a surefire model to grow your business and streamline productivity.

Interested in seeing SegStream in action? Schedule a free live demo and see how it works.

Is your firm charging enough for cost segregation studies?

CPAs doing cost segregation don’t often share information, which creates a lack of transparency in the industry. Learn from our survey how much other firms are charging for cost segregation studies and if you’re charging enough.

Many CPA firms work on cost segregation, but there isn’t much transparency between firms that compete for clients. There are knowledge gaps on pricing, processes, and how much cost segregation work other firms can take on. 

A recent survey we conducted on the state of cost segregation and future trends can shed light on some of these knowledge gaps. In it, we found out how much CPA firms charge for cost segregation, on average, and other useful insights that all CPA firms should know.

cost segregation

How much are firms charging for cost segregation? 

This is a question that all CPAs want to know the answer to, and we’ve got it. The average fee charged per cost segregation study is $9,000. However, that is the average of a wide range. Cost segregation fees vary from $2,500 to $30,000, depending on the size and complexity of the property. 

Now, if you’re at the bottom end of that sliding scale, it could leave you wondering why others are getting away with charging so much more than you. While we don’t have a direct answer to that, the lack of transparency in this industry has likely created some wide price gaps. 

Something else CPAs might wonder about is how many cost segregation studies other firms can complete.

cost segregation services

How many cost segregation studies are firms able to complete? 

Volume is a key part of a cost segregation business. The more studies you can complete, the more you will earn. However, some firms are limited in their ability to take on studies due to the high demand for labor and expertise to get studies done. 

According to our survey, the average firm completes 310 cost segregation studies per year. That number ranges from as little as 2 to as many as 3,000. So again, huge variability and many dependent variables are in play, but you can get a sense of what your average competitor might be getting done. 

Firms are also completing cost segregation studies on certain property types more than others. Here are the percentages out of all studies for each property type:

  • 36.8% Residential and multi-family
  • 31.6% Retail
  • 18.4% Office
  • 7.9% Industrial
  • 5.3% Hotels
cost segregation real estate

Another issue with volume is that many firms are outsourcing cost segregation to other firms simply because they can’t handle the amount of work. This again is the result of not having enough labor to complete studies, or perhaps using inefficient processes that don’t fully take advantage of the software and processes available today. 

66.7% of those surveyed completed all their cost segregation studies in-house, 16.7% outsourced all their studies, and 16.7% did both.

How should you price your cost segregation services?

Now that you know more about what others are charging, you can take a balanced approach to match supply and demand. If you can’t take on that many studies, you’ll need to charge more for all that high-detailed work. However, if you can take on more studies using automation to make the process faster and easier, you can meet a greater portion of the demand curve.

If you can automate much of the work, you might charge a bit less to attract more customers (but not too much less). Then, you’ll maximize profits for your cost segregation business because you can complete more studies in less time. This is a more efficient way to scale than hiring more staff and continuing to charge higher prices.

cost segregation studies

How SegStream can help you maximize cost segregation profits

SegStream allows you to increase your cost segregation revenue without hiring any additional staff. Instead, you invest in making the process faster and more efficient through automation. SegStream enables this by removing much of the engineering and cost-calculating work. Instead, you enter your client’s property information into a detailed questionnaire, and the study is produced for you. 

Interested in seeing SegStream in action? Schedule a free live demo and see how it works.

Why should CPAs offer cost segregation services to clients? 

Many CPAs hesitate to offer cost segregation because they think it’s complicated and expensive, but new tools are changing the game. Learn why your CPA firm should start offering cost segregation.

Many CPAs either don’t want to deal with cost segregation or think they can’t, and that’s understandable given how things were done in the past. However, offering cost segregation services doesn’t have to be overly complicated and new tools make it accessible to more CPAs.

In this article, we’ll get into the benefits of offering cost segregation to your clients and how to do more cost segregation studies with less complexity and time commitment.

what is cost segregation

More income

The first reason for offering cost segregation studies is obvious: more income for your CPA firm. Cost segregation is an additional revenue stream on top of typical accounting services. According to a recent survey of CPAs that we conducted, the average firm was doing 28.5 cost segregation studies per year, at an average of $7,000 per study. 

That’s about $200,000 per year in additional revenue. However, most of these firms are doing cost segregation studies in the traditional, labor-intensive way. If you take advantage of modern cost segregation software, you could easily scale beyond that.

what is a cost segregation study

Happier clients

Your clients come to you because they want to save money on their taxes. For investment property owners, one of the most powerful tax savings strategies is cost segregation. With it, they can claim depreciation expenses over a much shorter period, helping them push more tax savings earlier into the life of their property. 

If you can do that for clients, you are sure to have higher client satisfaction, better retention, and maybe even more referrals.

cost seg study

More referrals from high-quality clients

Most investment property owners are going to be the types of clients you want. They’re well off, have lots of assets, and have a complicated enough tax situation that they will consistently need your help. It’s also likely that they’re connected with other investment property owners. If you can offer a premium service like cost segregation, not only will they be happy, but they are likely to refer you to their friends and colleagues. 

If you can take on a higher volume of cost segregation studies and get them done quickly, you can become the “go-to” CPA for cost segregation studies in your area. Many small CPA firms rely heavily on referrals to drive new business, and this is a great strategy for getting high-quality referrals.

real estate cost segregation

CPAs can leverage technology to do more than ever before

Despite the misconception, CPAs can conduct cost segregation studies for their clients without hiring engineers. Before technology made cost segregation more accessible, CPAs needed to team up with engineers to measure the entirety of a property and figure out what materials everything was made out of. They would then use that information to estimate costs for each of the property’s components, which the CPA would use to create the depreciable cost basis for the cost segregation study.

SegStream automates the majority of this process. All the CPA needs now is reasonable estimates for the building’s measurements and materials. They can enter that information into SegStream and it will automatically use RSMeans to look up cost estimates. Then, the software automatically buckets each of the property’s components into the proper depreciation period and calculates the depreciable tax basis. 

What once took weeks to do can now be done in hours to days, depending on how long it takes you to come up with reasonable measurement and materials estimates for your client’s property.

cost segregation study real estate

Take on more clients and increase profit margins with Segstream

Based on our survey, the average profit margins on cost segregation studies for small to midsize CPA firms is 15-30% (not highly compelling). This is because of the high cost of working with engineers and spending endless hours doing manual calculations.

When CPAs switch to SegStream, the typical profit margin for cost segregation increases to around 85%. Without even taking on more studies, firms can significantly increase how much they’re making on cost segregation. However, because of how quickly studies can get done with SegStream, CPA firms can take on more cost-segregation clients. So not only are they increasing profit margins for studies, but they’re also able to take on more of them. 

Once you start getting referrals from your network of investment property owners to do more cost segregation studies, you create a flywheel effect that kicks your firm into higher gear. You’ll have a new income stream that helps you grow and expand to many more clients.

Interested in cost segregation services to your clients? Schedule a free live demo and see how SegStream works.

Why you don’t need to hire engineers for cost segregation studies 

Hiring expensive engineers for cost segregation studies is the old way of doing things. Tools like SegStream automate much of the process. Learn how you can complete more studies in less time without engineers.

The typical thought around cost segregation is that it’s complicated, expensive, and requires teaming up with qualified engineers to do. This holds many CPA firms back from taking on more cost-segregation clients, but it’s not always true. 

When you use a tool like SegStream, you can replace the work these engineers previously did with an automated tool, as long as you have reasonable estimates for your client’s property measurements and materials.

Here’s why you don’t need to hire engineers for cost segregation studies, and how you complete more studies in less time without them.

cost segregation

The biggest misconception in cost segregation: the need to hire engineers

It’s a decades-old misconception that you need certain engineering credentials to take measurements and calculate costs for a cost segregation study. Yes, you need to know the measurements of your building and the materials for different components such as the floors, roof, doors, etc., but you don’t need to be an engineer to come up with this information. In terms of coming up with costs, automated programs like SegStream can help with that. 

In the past, people were concerned that doing a study without an engineer would create quality and compliance issues. Back then, there wasn’t technology like SegStream that could help with this process, so it was helpful to get an engineer involved. It’s also true that on very large and complex buildings, it still might be helpful to use an engineer. However, for most properties, you can now get high-quality and IRS-compliant studies in much less time—without using an engineer.

cost segregation study

The new way of completing cost segregation studies

Online tools and SegStream take care of work that engineers previously did on cost segregation studies. The new way of doing cost segregation studies comes down to these two key factors.

  1. Reasonable estimates for measurements and materials: While you need accurate measurements, you don’t need them down the exact inch. You can come up with reasonable estimations using tools like ReGrid, Google Earth, and LoopNet. You can also use your own photos to come up with reasonable estimations for measurements and materials.

Using both photos and online tools together will easily give you a complete enough picture to complete a cost segregation study in SegStream Pro, and you’ll get it done much faster than if you hired an engineer. 

  1. Automated cost estimates: The other thing an engineer might do for you is help you estimate the replacement costs of your building materials. They may have used the RSMeans database to look up information for each piece of your client’s building one by one. 

SegStream automates that work away. Because it’s integrated with the RSMeans database, SegStream will automatically calculate costs for each of your building’s components as you answer the questionnaire to complete your study. It will then automatically put each of these costs into different buckets for depreciation periods (5, 7,15, 27, or 39.5 years) to come up with the depreciable tax basis. This is how it allows you to complete studies in hours to days, rather than weeks to months.

cost segregation studies

Cost segregation is ripe for disruption and significantly higher ROI

According to our recent survey of CPA firms, The average firm takes on 28.5 studies at $7,000 per study and the average profit margins for small to midsize CPA firms is only 15-30%. When they switch to using SegStream, we’ve seen firms increase their profit margin to 85%. 

So, even if they don’t take on more studies, the average CPA firm can increase cost segregation profits by around $125,000 just by switching to SegStream and eliminating the need for engineers. 

On top of that, firms will be able to take on much more studies in less time, which will further increase profits. We’ve heard from many firms that they either turn down cost segregation work or outsource it to other firms. It can make a huge difference to profits and the ability to take on new business by automating this process with SegStream.

Interested in seeing how you can automate and streamline your cost segregation studies? Schedule a free live demo and see how it works.

Reconciling to the tax basis in cost segregation, aka “the squeeze”: What it is and how to do it

At the end of a cost seg study, you must perform reconciliation so that you match estimated costs to the depreciable tax basis. Learn what reconciliation in cost segregation is and how to do it well.

Coming up with the estimated value of every component of your client’s property and dropping them into different depreciation periods is not the end of your cost segregation study. You will need to update those numbers in what is called ‘reconciliation’.

In this article, we’ll explain what reconciliation means for cost segregation studies in particular, how it works, and how you can complete it in less time.

cost segregation

What is reconciling the tax basis in a cost segregation study?

When doing a cost segregation study, you calculate the value of all components within your property using RS means estimates, then drop each of those components into different buckets for depreciation periods. Those buckets will be depreciation periods of 5, 7, 15, 27, or 39.5 years, depending on several factors. 

However, the value of those components that you get from RS means is not the final value you will use in your cost segregation study. You will need to reconcile those values up to the depreciable tax basis. So, when referring to ‘reconciliation’ in a cost segregation study, we mean calculating the difference between the RSMeans cost estimates for your property’s components and the true depreciable tax basis.

cost segregation studies

What is the true depreciable tax basis?

In a cost segregation study, the depreciable tax basis of your property is the improvement value divided by the total value. For example, if there are $14M in improvements on a $21 million dollar property, then the depreciable tax basis would be 0.67. 

To come up with the improvement value and the total value, you can use tax-assessed records from online tools like ReGrid, or you can get an appraisal done for the most accurate cost. Reasonable estimates are okay for cost segregation studies, which is why it’s sometimes okay to use tools like ReGrid, but an appraisal is foolproof.

cost segregation real estate


When and why you need to reconcile to the tax basis

Reconciling to the tax basis is necessary for a Purchase Price Allocation (aka “PPA study”) type study (as opposed to new construction studies). In cost segregation, you’re re-estimating the total cost to rebuild the property in its current state using acceptable assumptions and a reliable cost database (the gold standard is RS Means). Because it is re-estimating how much it would cost to rebuild the property, the re-estimated total is not going to be equal to the tax basis of the property.

There are multiple reasons that the re-estimation won’t be equal to the tax basis of the property:

  • Estimating is just estimating, and not intended to be exact costs.
  • Even if we could get exact estimations, that doesn’t account for market forces that can cause purchase prices to fluctuate above or below the re-estimated amount.
what is a cost segregation study

How do you perform reconciliation in a cost segregation study? 

Reconciliation is typically performed at the end of your cost segregation study after you’ve collected all of the costs of the various components of your property and distributed them into different categories for accelerated (or non-accelerated) depreciation. At this point, you have the cost estimates done using RSMeans estimates (if you’re using SegStream) and you should have the true depreciable tax basis.

If your total costs from RSMeans is $5.5M and the true depreciable tax basis of your property is $8M, then you would calculate $8M / $5.5M, which is about 1.45. That 1.45 number is the factor that you will then apply to all costs of the property components you identified. Basically, you break out every cost that added up to the $5.5M, then multiply them individually by 1.45. Then, your final number will equal $8M, which is the same as your true depreciable tax basis.

In this example, all of the cost estimates grow by 45% to match the true depreciable tax basis of $8M.

cost segregation depreciation

How do you perform reconciliation in SegStream Pro?

In SegStream Pro, reconciliation is as easy as pushing a button. Since all the numbers are already there, you don’t have to do any manual calculations to complete this step. In cost seg, this process is called “the squeeze”. So, in SegStream Pro, you simply hit the “squeeze” button and everything is squeezed up to the depreciable tax basis. However, the percentages of your components within the different depreciation period buckets (5,7,15, 27.5, or 39 years) will grow in proportion to the growth factor that we calculated above. 

So rather than doing these calculations in a spreadsheet and potentially making a mistake, you can do them with the click of a button after you’ve entered the information you need for your study. This is a much faster and more secure way to do this calculation, and you can be sure the estimates are reasonable since SegStream is connected to the RS means database. 

This is one of the many ways that SegStream makes cost segregation studies faster and easier. In turn, this gives you the ability to take on more clients since you don’t spend so much time manually doing calculations like these.

Interested in seeing SegStream in action? Schedule a free live demo and see how it works.

What’s The Difference: Excel vs. SegStream for Cost Segregation Studies

Using Excel for cost segregation studies? Learn what’s different about using SegStream Pro vs Excel and how you can save significant time per study.

There is no right or wrong way to do cost segregation studies. We’ve seen many people run their cost segregation business in Excel. However, there are some fundamental differences when using Excel vs. a program like SegStream Pro.

The main difference is the time it takes to complete a study, but there are several contributing factors. In this article, we’ll dive into the differences between using Excel vs. SegStream pro for cost seg studies, and why it’s faster and easier in SegStream.

Excel requires writing down a lot more quantities 

When using Excel to do a cost seg study, you’ll need to write down specific quantities for each component of the property. This includes specific numbers for plumbing, electrical systems, panels, tiles, etc. 

When you use SegStream, it will only ask for a few quantities, such as the surface area of a building. Then, we’ll simply ask you for percentages and the software will calculate specific quantities in the background based on greater metrics like the size of the property. 

For components like room types and finish types, we’ll ask for percentages rather than specific quantities. Then we’ll crunch the numbers in the background based off of pre-determined calculations set in the software.

This saves you tons of time because you don’t have to measure everything to the exact inch, but instead provide a reasonable estimate of the percentage. 

Excel requires you to do more calculations

After carefully counting and writing down all of your quantities into your Excel spreadsheet, you’ll then have to do a whole slew of calculations. 

For example, let’s say you own a building with 64 1-bed, 1-bath, 750-square-foot units. If you have an electrical panel in each 1 bed and bath unit, you’ll need to count everything that is qualified for accelerated deprecation within each panel. That means you’ll need to determine which components count as personal property (5-year depreciation) and which are not qualified and only count for standard depreciation for all 64 units. 

The same would hold true for the floor finishes of each unit. Let’s say you have 85 square feet of tile and the rest is all sheet carpet. You would need to then add up all the square footage of tile and sheet carpet within all the units, then calculate how much of those components qualify for accelerated depreciation and for what accelerated time period. 

These are pretty simple examples, in reality, it would be much more complicated since your units would probably not all be exactly the same. 

If you were using SegStream, you could simply ‘multiply’ each identical unit, and you would only need to put in percentages rather than do the calculations yourself. For the floor finishes, all you would need to do is put in the square footage for one unit, then say what percentage is tile and what percentage is carpet. The calculations, including accelerated depreciation periods, is then automatically done for you. 

It’s easier to make mistakes in Excel

Going back to the apartment building example, if you were using Excel you would have to be careful to make sure that all of the square footage in the units matches the total square footage for the building. If you were to end up putting more square footage of floor finishes than the actual square footage of the apartment, then multiply that mistake by 64 for each unit, the IRS might take issue. 

You could easily end up with thousands more square feet of floor finish than you should have, which would be a major mistake. These kinds of mistakes are easy to make when doing this manually. 

With SegStream, you put in percentages, so it’s impossible to make that mistake as you can never go beyond your building’s total square footage or footprint. 

Excel requires you to think much harder

All of the questions you need to be answered to complete a cost segregation study are inside of SegStream and prompted to you as you go through the study process. Excel, on the other hand, requires you to start from scratch, or at least copy/paste your last similar project. You may have Excel templates for different property types as well, which can help. 

The issue with this is that no two properties are the same, and using a template based on one property might not collect all of the information you need for another. You end up needing to think very hard and carefully to make sure you’ve turned over every last detail and asked every question. 

SegStream takes care of that thinking for you. Instead of worrying about the details, you go through the questionnaire process and can be ensured that the program will prompt you for every detail you need. 

While there are many ways to successfully do cost segregation studies, we believe the process we’ve created with SegStream to be much faster and easier. The goal is to enable you to do more studies in less time, allowing you to take on more clients and drive greater profits for your firm. 

Interested in seeing how SegStream works? 

Schedule a free demo and we’ll show you how. 


Cost segregation photos: What to photograph and how to use them

Photos are essential for cost segregation studies. Learn what you need them to capture and how to best utilize them to estimate reasonable measurements.

Photos are essential for cost segregation studies. If you can instruct your clients to take them properly, you don’t need to physically make a site visit, nor do you need engineers to go and measure everything inch by inch.

Alternatively, if you do take the photos yourself, knowing how to get them right will save you extra trips to your client’s property. Either way, thorough photos will help you get your studies done faster when paired with a system like SegStream Pro. 

Below, we’ll show how to make sure you get thorough photos for cost segregation studies and how to use them. This will help you tell your clients exactly what you need from their photos, or you can use it as a guide for taking photos on your own. 

Cost Seg photos allow you to make reasonable estimates

Photos are important for cost segregation because they can help you make reasonable estimates and allocations, and provide a paper trail for how you can up with an allocation. Remember that an estimate is acceptable as long you put forth a reasonable effort to show a realistic estimation. 

When using photos for an estimate, make it a little bit easier on yourself by picking round numbers. For example, if you’re estimating the length of floor tiles from a photo and you’re torn between 17ft 6in or 18 ft 4in, just pick 18ft. As long as it’s reasonable and legitimate, this is the easiest route.  

What you need in your photographs and how to best use them

Essentially, you need someone to photograph every square foot of the property. This will most likely be the property owner or someone they know and trust. Have them treat it like they’re doing a thorough inspection where they photograph every nook and cranny. 

These are some (but not all) of what you’ll need your photographs to capture:

  • Floors and floor finish types
  • Walls and wall materials
  • Air conditioning components such as vents, thermostat, and the compressor on the outside
  • Windows and window coverings such as vertical blinds
  • What kind of doors and how big they are, a typical door is 7ft tall
  • Different types of lighting
  • Cabinetry, countertops, and receptacles in the kitchen
  • Garbage disposals and dishwashers, ideally getting a photo of the make and model on the label
  • Ceiling fans
  • Furnaces and water heaters
  • W/D hookups and plumbing and electrical for the washer and dryer.
  • Conduits in the walls and wiring in the conduit
  • Railings and railing material such as wood or metal
  • Stucco on the outside of the building
  • Photos of the circuit breaker and labels can tell you what electrical hookups and appliances there are (dryer, a/c, furnace, etc.)

Again, these are just some of what you’ll need to capture. Photos of every part of the building and external property are essential. You want to leave no stone unturned.

These photos will not only show what there is and what material it’s made out of, but they’ll also help you estimate measurements in good faith. For example, if you see a photo of a standard door, you can safely assume it’s about 7 ft tall and 2.5 ft wide. 

If you see tiling that looks about 1ft x 1ft, and you see 12 tiles going across the floor, you can reasonably estimate the 12ft length of the tile. Building plans can also be referred to, in tandem with the pictures, to create good faith estimates for how much of a certain material there is. 

These types of estimates are permissible to use in a cost segregation study, which means you do not physically need to go to the property and measure it if you have substantial photographs. 

How to supplement photographs with other tools

Tools like Google Earth and ReGrid can also help you, as they show a map of the building structure that you can measure using the tool. 

For example, imagine you know you have a hallway that runs the length of a building that has vinyl flooring, cement walls, and cement ceiling, but you can’t estimate the length of the entire hallway using photos alone. You could go to Google Earth and simply measure the length of the building, then use the photos to estimate the width of the hallway and ceiling and the height of each wall. Then, you have a reasonable estimate for each component of the hallway that you derived from photos and Google Earth combined. 

Google Earth

ReGrid

SegStream walks you through the info-gathering process that your photos inform

The easiest way to complete a cost segregation study in the least amount of time is to have your client provide thorough photos (or take them yourself if you can) of everything in the building. Then, you use our software, SegStream Pro, to walk you through the info-gathering process. 

The way cost segregation studies work using SegStream Pro is essentially a long questionnaire that you fill out. What’s nice about this is that all the questions you need answered are in the software, so you don’t have to think of them yourself. If you have photographs of every component of the building, you can refer to them as you run through the questions in SegStream Pro and fill them out as you go. This makes the process much easier and faster, combining the benefits of the software with your complete photo library. 

The software then creates an automated cost segregation study based on the estimates and information you gathered from your photos in a fraction of the time it would take to do it the traditional way.

Interested in seeing how it works? Schedule a free live demo and we’d be happy to show you. 

How to use SegStream to complete more cost seg studies in less time

Many CPAs take on less cost segregation work because they’re worried they can’t handle it or will end up outsourcing it. Learn how you can take on more cost segregation studies with SegStream Pro.

Many tax pros can’t take on as much cost seg work as they would like because it takes so long to get it done, especially as tax season deadlines arrive. For the clients they can handle, they end up working overtime and getting studies done at the last minute.

The question on many CPAs’ minds is, “How can I get more cost seg studies in less time?” The answer is SegStream Pro.

More studies in less time with SegStream Pro

Relying on traditional and manual methods such as hiring engineers to painstakingly go through every detail of a property slows studies down and keeps CPA firms from taking on more cost seg work. SegStream Pro is a custom cost segregation software that empowers CPAs to complete more studies and earn more through their cost segregation business. It achieves this by automating and streamlining the cost segregation process. 

With SegStream Pro, you can expect the following benefits:

  • Get cost seg studies done in 2-3 hours rather than 2-3 weeks. This enables you to take on more clients and earn more through cost segregation studies. 
  • Focus more on sales. Spending less time pouring over studies gives you more time to bring in more clients and further grow your business. 
  • Increase confidence in your studies. Because traditional studies are so complicated and take so long, it’s harder to ensure a higher standard of quality. With SegStream Pro, your redundant tasks are covered so you can focus on ensuring quality for every study.
  • Reduce your grueling tax season workload. Make more time for your family and have a life this tax season by automating redundant cost segregation tasks.
  • Forget outsourcing. SegStream Pro eliminates the need to outsource your cost seg work to other CPAs just because you can’t handle it all. Now you can do it all in-house. 

How does SegStream Pro make this possible?

When conducting a cost segregation study the traditional way, engineers and CPAs need to dig up a ton of information. Essentially, every little detail of the property needs to be cataloged and measured. This requires thinking of all the possibilities and all the questions to ask your property owner clients.

SegStream Pro, on the other hand, has all of the possible options already accounted for in the software. So, instead of going out there and gathering every bit of imaginable information, you’re guided through a series of streamlined questions. After you’ve answered these questions, an automated cost segregation study is produced. 

What this does is make it much easier to select and find the right information from your clients. If there is something missing, you know exactly what that is, rather than playing a guessing game. 

We created this system after doing thousands of cost seg studies the hard way, leaving no stone unturned. All of the conventions, tax cases, and everything else you need to look for are already in the software. For example, if you are working on cost segregation for a fence, the software will have a series of yes or no buttons for fencing material (wood, metal, chain link, etc.), and allow you to quickly input the length of that fence. 

This same process is repeated for every possible building component. This guided experience will turn weeks of information gathering into hours, and will automatically produce a report that details what components fall under what accelerated depreciation categories (5, 7, 15 years, or standard). 

Interested in seeing how this works? 

Reserve your spot for a live demo of SegStream Pro to see for yourself. It’s simple to use, and you could get started before this year’s tax season. 

Who knows, maybe you can take on more clients and say goodbye to grueling hours and paying extra to outsource cost seg work. 

Accelerate ROI: Harnessing the Benefits of Cost Segregation

Discover how cost segregation studies can maximize tax benefits and unlock hidden value in real estate investments. Learn about the process, benefits, and examples of cost segregation studies in this blog post.

Discover how cost segregation studies can maximize tax benefits and unlock hidden value in real estate investments. Learn about the process, benefits, and examples of cost segregation studies in this blog post.

What is Cost Segregation?

Cost segregation is a strategic tax planning tool used by real estate investors and their CPAs to accelerate depreciation deductions on commercial properties (including residential rentals).

By identifying and reclassifying assets within a property from real property to land improvements and personal property, cost segregation studies allow a shorter depreciation recovery period for those “segregated” assets. This can result in significant tax savings for the investors/property owner in the near term.

Traditional real property depreciation typically spans either 27.5 years, for residential rentals, or 39 years for all other commercial properties. By employing a cost segregation study, however, assets can be reclassified to shorter recovery periods, for example, 5, 7, or 15 years, and that’s before any bonus is taken.

From September 2017 to the end of 2022, for instance, bonus rules allow all assets built or bought during that time period, and being depreciated under recovery periods of 20 years or less, to take 100% depreciation in the first year. This means that the sum total of 5,7, 15 or any other recovery period identified in a cost seg can be deducted as an expense in year one.

Considering that Cost Seg studies are often identifying as much as 40% (sometimes more) of property assets (by value) into recovery periods that are 20 years or less, the tax savings can be incredibly substantial.

The Benefits of Cost Segregation Studies

Cost segregation studies offer several compelling benefits for real estate investors.

As outlined above, they provide immediate tax savings by front-loading depreciation deductions, resulting in substantial reductions in taxable income (especially when bonus applies). By doing this, investors are freeing up additional cash flow to be reinvested or used for other business purposes.

Furthermore, cost segregation studies, when implemented at the strategy level, can improve metrics on investment properties, e.g. by increasing after-tax income, making some deals more lucrative/attractive than they otherwise would be.

How Does a Cost Segregation Study Work?

Cost segregation studies are detailed analyses of a property’s components and associated costs.

The studies identify assets which qualify for shorter depreciation recovery periods by analyzing them in reference to IRS regulatory publications, established case law, and industry best practices.

These comprehensive studies provide a thorough breakdown of the costs associated with all segregated assets, allowing for precise reclassification and optimization of tax benefits.

Real-Life Examples of Cost Segregation Studies

To better understand the impact of cost segregation studies, let’s consider an example.

Suppose a business owner purchases a commercial property for $1 million. They expect to depreciate the entire amount over 39 years. However, through a cost segregation study, it is determined that $250,000 of the property’s value can be reclassified as a shorter-life asset. These shorter-life assets are eligible for recovery periods much shorter than the long-life recovery period, for instance: 3,5,7, and 15-year depreciation recovery periods.

Depending on the specific reclassification results, this can result in significant tax deductions and increased free cash flow over the long term.

Cost Segregation Services: Hiring the Experts

While the concept of cost segregation may seem straightforward, conducting a thorough and accurate study requires specialized expertise.

Hiring a professional cost segregation service ensures the study is conducted in compliance with the latest tax regulations to provide the maximum tax benefits. These services have a deep understanding of cost segregation methodologies and can navigate the complexities of the process, ensuring a comprehensive analysis tailored to your specific property.

This results in optimal study results that are robust to IRS audit.

Making Informed Decisions with Cost Segregation Studies

By conducting a cost segregation study, real estate investors gain valuable insights into the financial impact of their property. These studies provide a detailed breakdown of asset costs, allowing investors to make informed decisions regarding asset management, refinancing, and even future acquisitions.

With a clear understanding of the components and their associated values, investors can optimize their tax strategies and enhance their overall investment performance.

Conclusion

Cost segregation studies are a powerful tool for real estate investors and business owners seeking to unlock hidden value and reduce tax liability. By accelerating depreciation deductions, these studies provide immediate tax savings, enhance cash flow, and maximize return on investment. 

To fully harness the benefits of cost segregation, it is advisable to engage a professional cost segregation service with the expertise and technology to conduct the highest level quality studies. 

Complete Your Cost Segregation Studies Today

SegStream is a simple and easy-to-use software solution that helps CPAs, specialty tax firms and tax experts grow their businesses by completing more cost segregation studies in less time.

Created by a team of architects, engineers, and Cost Seg professionals, SegStream provides IRS audit-proof cost segregation studies in hours NOT days.

With SegStream, you can complete cost seg studies with no previous cost segregation experience but if you consider yourself a pro, SegStream will turbo-charge your study production efficiency.

Schedule a demo today and learn how SegStream can help you grow your business.