How Cost Segregation Can Save You $100K+ on Investment Properties
We already talked about the top five tax strategies every real estate investor should know and use.
If you missed that - you can read about them by clicking below.
Top 5 Tax Strategies Every Lakewood Real Estate Professional Should Know
Today, we want to talk about how one of those strategies (alone) can help you save $100k+ on investment properties.
To be more specifically - cost segregation.
Cost segregation isn't just a tax strategy - it's one of the most underutilized financial levers available to real estate investors.
Now you understand why we wanted to explore this strategy in more depth.
If you own or recently acquired a property worth $500K or more, chances are you're sitting on six figures of potential tax savings without realizing it.
This article breaks down exactly how cost segregation works, why it matters for Colorado-based investors, and how to apply it the right way.
And yes, this doesn't work only for Colorado-based investors.
We do this for clients across the US.
What Is Cost Segregation?
Ok, if this is the first time you hear about this, let's shed some light on this super-powerful tax strategy.
Cost segregation is a specialized tax strategy that accelerates depreciation on components of a property.
Rather than depreciating the full property over 27.5 or 39 years, a cost segregation study identifies parts of the building - like carpets, lighting, appliances, and even landscaping - that qualify for shorter depreciation timelines (5, 7, or 15 years).
The result?
More deductions in the early years of ownership.
On top of that, you get improved cash flow and a lower tax bill.
So why not use it?
Who Should Use It?
Cost segregation is great for most real estate investors, but (even) most valuable for investors who:
Recently purchased or renovated a property worth $500K or more
Own commercial or multi-family residential properties
Want to reduce taxable income and free up capital to reinvest
It’s commonly used for apartment complexes, retail buildings, office space, industrial properties, and mixed-use developments.
Real Impact: A Colorado Investor Case Study
One of our clients, a Lakewood-based investor, purchased a $1.2M mixed-use building in 2023. Without cost segregation, they would have received approximately $30K in depreciation deductions per year.
After a full study, we reclassified $420K of assets into shorter-life categories.
This increased their first-year depreciation to over $160K - saving them more than $52K in taxes.
It also allowed us to give them extra capital to fund their next down payment.
This isn’t creative accounting.
It’s an IRS-sanctioned, audit-tested strategy - and it's fully legal when done by qualified professionals.
Key Benefits of Cost Segregation
Here are just a few key benefits you should be aware of regarding cost segregation, if you haven't already:
Significant first-year tax deductions
Reduced current-year taxable income
Increased cash flow for reinvestment
Improved ROI on property acquisition
It’s especially powerful when paired with bonus depreciation or as part of a 1031 exchange reinvestment plan.
What a Proper Study Includes
A cost segregation study should not be done in-house or by your general CPA.
It requires an engineering-based report that categorizes every depreciable element of your building.
At Cutler & Co., we partner with certified cost segregation specialists and align their findings with your broader tax strategy.
This ensures accuracy, defensibility, and strategic integration into your depreciation schedule.
When to Act?
Cost segregation is most effective in the year you purchase, build, or significantly renovate a property.
However, it can also be applied retroactively by amending past returns in some cases.
If you’ve acquired property in the past 1–3 years and haven’t done a study, it may not be too late to capture those savings.
Either speak with your current CPA or get in touch with one of our specialists to discuss and explore how you can use cost segregation to your advantage.
How Cutler & Co. Helps You Capture the Full Benefit
Our team handles end-to-end coordination - from identifying eligibility and managing the engineering study to updating your depreciation schedules and filing any amended returns.
We’ve helped dozens of investors across the US:
Maximize depreciation timing across portfolios
Reduce taxable gains during 1031 exchanges
Pair cost segregation with bonus depreciation under IRS guidelines
This isn’t a plug-and-play tax trick.
No.
It’s a strategic move that fits into your long-term portfolio and tax optimization plan.
If you’re serious about scaling your real estate investments (the right way), let’s put cost segregation to work for you.
