Can You Do Your Own Cost Segregation Study? (Quick Answer)

For property owners and real estate investors looking to maximize income tax deductions, cost segregation can be a highly effective strategy. One common question is whether a cost segregation study can be completed independently without professional support.

This guide explains when a do-it-yourself approach may be possible, how the process works, and the potential risks involved. In many cases, partnering with experienced cost segregation professionals is the more reliable option, particularly for meeting IRS cost segregation requirements.

Working with Segtax, investors can legally reduce their tax liability by accelerating depreciation on qualifying real estate components using the IRS-endorsed engineering-based approach—widely regarded as the most comprehensive and defensible method available.

Can You Do a Cost Segregation Study on Your Own?

While it is technically possible to perform a cost segregation study on your own, the IRS rules and standards apply equally to all properties, regardless of size or complexity. A compliant cost segregation study requires detailed engineering analysis, proper asset classification, and a strong understanding of tax law.

Because of these requirements and the potential audit risk, it is strongly recommended that a qualified professional service provider conduct the study. Working with experienced cost segregation specialists helps ensure accuracy, defensibility, and full compliance with IRS guidelines.

Who Is Qualified to Conduct a Cost Segregation Study?

The IRS Audit Techniques Guide for cost segregation recommends a detailed, engineering-based approach. Due to the technical nature of these studies, only a limited group of qualified professionals are suited to perform them, including:

• Professionals such as Engineers, Certified Public Accountants (CPAs), or tax specialists, particularly those with real estate experience.

• Firms that specialize in cost segregation and use a multidisciplinary approach combining engineers, tax experts, and accountants

• Cost segregation engineers

• Certified Cost Segregation Professionals (CCSPs) are also suitable.

CCSPs are not always engineers or CPAs, but they have in-depth knowledge of cost segregation methodologies. Many also have expertise in tax law, construction principles, and complex IRS cost segregation regulations.

DIY vs. Hiring a Professional for Cost Segregation

How to Conduct a DIY Cost Segregation Study

If you decide to conduct a cost segregation study on your own, the process generally involves the following six steps:

1. Gather the Necessary Information: Start by collecting all relevant documentation, including:

   • Construction records

   • Contractor payment details

   • Property photographs

   • Recent property appraisals

   • Blueprints, maps, floor plans, and other architectural drawings

   • Invoices and receipts

   • Purchase agreements

   Accurate documentation supports your calculations, strengthens your claims, and helps ensure compliance with IRS guidelines.

2. Inspect the Property: Conduct a thorough property inspection to identify building components and assess their value. Common components that may qualify for accelerated depreciation include roofing, electrical fixtures, plumbing, fencing, and flooring. In many cases, you may need to pay for access to trusted third-party cost databases to accurately estimate the value of building components.

3. Classify Assets: Each identified component is assigned to the correct depreciation category based on its function and level of permanence.

   Assets that are not permanently attached to the building—such as movable equipment, appliances, and certain finishes—often qualify for accelerated depreciation under five- or seven-year schedules. Exterior improvements like walkways, parking lots, and site lighting are typically depreciated over 15 years.

   Components that do not qualify for accelerated depreciation remain in the standard recovery period: 27.5 years for residential properties and 39 years for commercial properties. These generally include the building’s structural elements and core systems, such as most HVAC, electrical, and plumbing components.

4. Assess Remaining Useful Life of Assets: Using engineering judgment, site inspections, and available documentation, each component is evaluated to determine how much of its useful life remains at the time of the study. For example, if an asset is determined to be approximately 70% functional or serviceable as of the study date, this condition factor is applied to the component’s assigned value. These adjusted values reflect the asset’s remaining utility and are later used as inputs in tax software.

5. Prepare the Final Report: Create a detailed report outlining your methods, asset categories, depreciation calculations, results, and expected tax savings for the first year and beyond. Submit this report to the IRS to justify and claim tax benefits related to depreciation.

6. Determine the Tax Savings: Estimate your potential tax savings from accelerated depreciation based on your applicable tax bracket.

   For example, if you’re in the 37% tax bracket, first-year tax savings depend on how the property is depreciated.

   Residential (27.5 years) and commercial (39 years) properties use straight-line depreciation, spreading deductions evenly each year. Using standard depreciation, the calculation looks like this:

   Tax Savings with Standard Depreciation
Annual Depreciation × Tax Bracket
= $21,794 × 37% = $8,063

   For 5 and 15-year property, bonus depreciation is applied, and the remainder follows MACRS depreciation.

   Potential Risks of Doing Your Own Cost Segregation Study

   • Poor Feasibility Analysis: If the feasibility analysis is done incorrectly or skipped altogether, you may invest significant time and effort only to find that the potential tax savings aren’t worth it.

   • Time-Intensive Process: Learning and executing a quality cost segregation study can be extremely time-consuming, especially without experience in tax law and construction costing. This can take valuable time away from other business activities and investments.

   • Missed Tax Savings: Without the right expertise, you may fail to identify all eligible components, resulting in lower tax savings than you could have achieved.

   • Costly Errors: Inexperience can lead to incorrect asset classifications or depreciation calculations. These mistakes may trigger IRS audits, penalties, or disallowed deductions—costs that can easily exceed the price of hiring a professional service.

   
   Rather than navigating these challenges on your own, you can work with a cost segregation firm like Segtax. Our studies are fully IRS-compliant and designed to withstand scrutiny without increasing audit risk.

Final Thoughts on DIY vs. Professional Cost Segregation

If you’re considering a DIY cost segregation study, it’s essential to have the right engineering background, along with a strong understanding of tax law, construction, and accounting. While handling the study yourself may cut professional fees, it often isn’t the smartest financial choice.

DIY studies also carry a higher risk of IRS audits, especially when calculations are inaccurate or asset classifications are overly aggressive due to subjectivity. To avoid these challenges, working with an experienced firm helps ensure objectivity and brings the necessary technical expertise to the process. Contact us to find out whether your property qualifies for cost segregation, how much you could save, and the potential return on investment.