Small Buildings, Big Savings
Tax deductions remain one of the most reliable ways real estate investors can reduce liability and strengthen cash flow. Among the most powerful tools available is cost segregation. This method accelerates depreciation deductions by reclassifying certain building components into shorter recovery periods. The effect is simple but profound: lower taxable income, reduced tax payments, and more rental income kept in hand. Over time, this translates to stronger returns and healthier investment portfolios.
Since 2007, US Tax Advisors Group, Inc. (USTAGI) has focused exclusively on cost segregation. For years, one of the most common objections came from owners of smaller properties, who were told cost segregation was not worthwhile unless they had a very large or complex building. That assumption is no longer valid.
How Technology Changed the Game
Beginning around 2017, major advances in technology reshaped how cost segregation can be performed. Tools such as artificial intelligence, specialized depreciation software, and access to national property data reduced the need for always sending an engineer on site. This made possible what we call Analytical studies, a streamlined approach that provides reliable, IRS-compliant results at a fraction of the traditional cost.
For example, consider a $400,000 single-family rental home. If 20 percent of that value is allocated to land, the building basis is $320,000. With a cost segregation study, it would not be unusual to reclassify around $67,000 into accelerated depreciation. At a 40 percent tax rate, that could mean roughly $27,000 in reduced taxes. These savings can be reinvested back into the portfolio or used to cover operating costs. Importantly, these studies typically cost under $1,000, making them accessible to a much wider range of investors than in the past.
The Right Tool for the Right Property
Technology has broadened what is possible for smaller properties, but that does not diminish the importance of traditional engineering-based studies. For larger, more complex, or higher-value properties, an on-site, engineering-driven approach remains the gold standard. These studies allow for the most detailed reclassification of assets, maximizing tax savings while ensuring strict IRS compliance.
This means whether the property is a single-family rental, a mid-sized commercial building, or a multi-million-dollar facility, there is a cost segregation method suited to it.
Why So Many Owners Miss Out
Despite the clear financial benefits, many property owners never take advantage of cost segregation. A common reason is that their accountants or tax preparers are not aware of how accessible the studies have become, especially for smaller buildings. As a result, substantial tax savings go unclaimed year after year.
What Is Needed to Begin
Getting started is straightforward. To provide a free preliminary estimate, we typically need only the following information:
- The property address
- The building basis, which is the purchase price minus land allocation
- The date the property was placed into service
- Whether the acquisition was part of a 1031 exchange
- For properties placed into service in the prior tax year, a copy of the Federal Depreciation or Fixed Asset Schedule filed with the last return
You can also fill out our intake from linked here and we can jump right in!
Once USTAGI receives this information, a no-cost estimate and fee will be presented to the client.
Don’t let outdated assumptions cost you thousands in tax savings.
If you own a smaller investment property, cost segregation is not only possible—it’s affordable, proven, and IRS-backed. Contact USTAGI today for a no-cost estimate and see how much additional cash flow your property could generate this year.
