Is cost segregation worth it on properties under $500K? Yes — if the study cost stays under about $1,000 and the property is above about $200K, cost segregation typically produces several thousand dollars in first-year tax savings. At traditional $5,000+ study fees, the math usually breaks down. The issue isn't that cost seg fails on smaller properties; it's that the study fee eats the return.
Most traditional firms don't actively pursue $300K rentals. Not because the math fails — because their $5,000 price tag makes it look like the math fails. At $495 for sub-$300K properties or $795 for $300K–$1M, the numbers move. This post walks the real math for properties between $125K and $500K, shows the break-even property, and tells you when we'd actually recommend skipping the study. (For a broader view across all property sizes, see ROI by property type.) Short-term rentals, long-term rentals, condos — all fair game.
Looking for the dedicated pricing page? See our cheap and fast cost segregation overview — the one-page thesis for why small-property math now works.
The math, property by property
Here's the table traditional firms don't tend to run. Assume 20% land allocation (this is a middle-of-the-road assumption — coastal metros are often higher, Midwest markets often lower), a 20% reclassification rate (conservative — STRs usually run higher), and full bonus depreciation (as currently allowed under recent federal tax law).
| Purchase Price | Depreciable Basis | Reclassified (20%) | Tax Savings (24%) | Tax Savings (32%) | Study Fee |
|---|---|---|---|---|---|
| $200,000 | $160,000 | $32,000 | $7,680 | $10,240 | $495 |
| $250,000 | $200,000 | $40,000 | $9,600 | $12,800 | $495 |
| $350,000 | $280,000 | $56,000 | $13,440 | $17,920 | $795 |
| $500,000 | $400,000 | $80,000 | $19,200 | $25,600 | $795 |
Why the math looks wrong (and why it isn't)
Run the same table at a traditional firm's $5,000 price point and the picture flips. A $200K rental produces $7,680 in savings at 24% — against a $5,000 study fee, that's a thin margin. At $10,000, you're underwater. That's why the industry treats these properties as not worth doing. It's an accurate statement about the traditional business model, not about the underlying tax math.
Short-term rentals tilt the numbers higher because of FF&E — furniture, fixtures, and equipment qualify for 5-year depreciation, and a fully furnished Airbnb or VRBO rental typically has 25–30% reclassification instead of 20%. A $350K STR can easily produce $15,000–$20,000 in first-year savings instead of the $13,440 number above. The STR-specific math is covered here if you're running a short-term rental.
The break-even property
The math cleanly turns positive around $100K–$125K at a $495 study fee (the sub-$300K tier). Below that, the absolute dollar savings get small enough that the filing complexity (accelerated depreciation schedules, possible Form 3115 for lookback years, extra bookkeeping time from your CPA) starts eating the benefit. At a $125K rental and 24% bracket, you're looking at roughly $2,400 in first-year savings against a $495 study — still net positive, but the absolute dollar amount is modest enough that a careful CPA might tell you your time is worth more spent on the next acquisition.
Above $200K, the math is pretty much always worth running. Below $150K, it depends on your bracket, your holding period, and how much your CPA charges per hour. There's no universal answer in that bottom bracket. Our benchmarks post shows typical reclassification percentages by property type if you want to plug in your own numbers.
Three real examples (numbers only, properties anonymized)
These are recent studies we've actually run, with addresses stripped. Nothing unusual — just representative properties in the sub-$500K bracket.
$275,000 long-term rental, Midwest suburb
Depreciable basis after land: $220,000. Reclassified into 5/7/15-year classes: 18.2% ($40,040).
Year 1 deduction with full bonus: $40,040. Tax savings at owner's 32% bracket: $12,813.
Study fee: $495.
$420,000 short-term rental, Smoky Mountains
Depreciable basis after land: $336,000. Reclassified (furnished STR with FF&E): 27.4% ($92,064).
Year 1 deduction with full bonus: $92,064. Tax savings at owner's 37% bracket (STR offsetting W-2): $34,064.
Study fee: $795.
$195,000 duplex, Rust Belt metro
Depreciable basis after land: $156,000. Reclassified: 16.8% ($26,208).
Year 1 deduction with full bonus: $26,208. Tax savings at owner's 24% bracket: $6,290.
Study fee: $495 (under $300K tier). Owner held 7 years before buying the study, so Form 3115 lookback also captured 6 years of missed depreciation (worth roughly $3,800 more).
The STR in the Smokies runs the math you'd expect for furnished vacation rentals. The duplex is the more interesting one — an investor who'd held the property for years without running a study, discovering the numbers work even at sub-$200K because a lookback can catch all the prior years at once. The Form 3115 lookback angle changes the math for properties you already own. See the full components list here if you want to understand what actually gets reclassified.
When we'd tell you not to do it
Skip it if any of these apply
You're in the 12% or 22% bracket and the property is under $100K. The absolute dollar savings get thin. An $80K rental at 22% with 18% reclassification produces about $2,500 in first-year tax savings. Still positive ROI on a $495 study, but your CPA's bookkeeping time and the filing complexity can eat a big chunk of the net benefit.
You plan to sell within 2–3 years without a 1031 exchange. Depreciation recapture on sale gets taxed at ordinary income rates (up to 25% for real property). If you accelerate depreciation and then sell, you effectively front-loaded the deduction only to pay it back. Cost seg isn't "wrong" in this case — it's a timing shift that might not help — but you should model it with your CPA first. We have a separate post on the sell-soon scenario.
The property is your primary residence. Cost seg only works on rental or business property. Converting a primary to a rental first is a strategy that exists (covered here), but it has its own timing rules.
Not sure where you fall? See if it pencils with our estimator.
That's it. For properties $125K+, in a 24%+ bracket, held 3+ years, the math is pretty much always positive at a $495 study fee ($795 once you pass $300K). For the edge cases above, run the numbers with your CPA before committing. For more on where the cutoff sits, see our breakdown of minimum property value thresholds.
Why traditional firms quote this market as "not worth it"
A $5,000 study on a $300K rental generating $9,600 in tax savings leaves a narrow margin — $4,600 net before your CPA's time. A $10,000 study on the same property is roughly break-even on the fee. No traditional firm is going to pitch that math to a client and expect a signature. So they don't quote it, or they quote a $3,500 minimum that still makes the numbers thin.
We price flat by purchase price tier instead of by engineering hours. A $200K property takes essentially the same work as a $500K property in our system — pull the county assessor data, run it through the component library, classify under MACRS, write the narrative, ship the PDF. The marginal cost of a smaller property is maybe fifteen minutes of analyst review, not a full engineering hour. That's why the price starts at $495 for sub-$300K properties and $795 up to $1M, regardless of whether your rental is a modest duplex or a full-size single-family.
how cost segregation studies work →
None of this is magic. It's cost structure. Traditional firms have a real business, with real overhead (site visits, scheduling teams, sales commissions, office engineers). They're honestly pricing their overhead. We just don't have their overhead, so we can charge less without cutting quality. See what's actually in a $495–$795 study for the full line-item comparison. For more on the pricing gap between automated and traditional firms, we break it down elsewhere. Cost Segregation Reviews also tracks current pricing across providers if you want to see how the market looks today.
Frequently asked questions
Yes, at a $795 study fee. A $200K rental with 20% land and 18% reclassification produces about $7,680 in first-year tax savings at a 24% bracket. The key is that the study fee has to be small relative to the tax savings — traditional $5,000 studies break this math at $200K, which is why those firms don't tend to quote the work.
With a $795 study and a 24%+ federal bracket, the math starts turning positive around $150K purchase price. Below that, the absolute dollar savings are small enough that the filing complexity and your CPA's extra bookkeeping time can eat the benefit. There's no universal floor — it depends on your bracket, your holding period, and what your CPA charges.
A $400K short-term rental typically reclassifies 25–30% of depreciable basis into accelerated classes (higher than long-term rentals because of FF&E). At 27% reclassification and a 37% bracket with W-2 offset, a $400K STR produces roughly $32,000 in first-year tax savings. At a 32% bracket, closer to $27,600. Use our calculator for your specific property.
Almost always, yes. Our reports include the same engineering methodology, MACRS component classifications, depreciation schedules, and Form 3115 documentation that traditional firms produce. Most CPAs care about the report contents, not the price paid. If your CPA has concerns, we'll revise at no charge — and if they can't work with the report, we refund.
Yes, via Form 3115 (Change in Accounting Method). A lookback study lets you recover years of missed accelerated depreciation in a single tax year — no amended returns needed. For smaller properties you've held 5+ years, the lookback benefit is often bigger than the first-year benefit alone. Full lookback explainer here.