Cost Segregation 101: Accelerating Tax Savings Through Real Estate

Intro: Why This Matters to Physicians

As physicians, we’re accustomed to working hard, earning well, and paying a significant amount in taxes. But what if one investment property could change that?

Cost segregation is a tax strategy that enables you to accelerate depreciation on real estate, often resulting in six-figure write-offs in the first year. It’s legal, underutilized, and surprisingly physician-friendly.

Most doctors never hear about it until they’ve already missed the window. This post is here to change that.

What Is Cost Segregation?

Typically, when you purchase a property, the IRS allows you to depreciate it over 27.5 years (for residential properties) or 39 years (for commercial properties). That’s a long time and a slow tax benefit.

Cost segregation allows you to break down the property into its components — such as carpets, cabinets, appliances, and more — and depreciate many of them over 5, 7, or 15 years. When combined with bonus depreciation, you can take a huge tax deduction in year one.

If you qualify, the result is a significant paper loss that can offset real income.

How It Works: A Quick Example

Let’s say you buy a short-term rental for $800,000. You spend $50,000 on furnishings and renovations.

Using cost segregation, a specialized firm analyzes the property and determines that $200,000 worth of it qualifies for 5- or 15-year depreciation.

If you take 100% bonus depreciation, that $200,000 becomes a first-year write-off.

If you qualify to use that loss against your W-2 or 1099 income (via STR rules or REP status), you could reduce your taxable income dramatically — and potentially trigger a $50K–$100K tax refund.

Why Most CPAs Don't Bring It Up

Many CPAs focus on compliance rather than strategy. They may not mention cost seg unless you ask — or unless they specialize in high-income, real estate-focused clients.

That doesn’t mean it’s risky or rare. It just means you need to lead the conversation.

What Kind of Properties Work Best?

Properties above ~$500,000 tend to generate meaningful benefits

Short-term rentals are often the best fit, especially if you don’t qualify for REP

Properties you furnish and renovate create even more depreciation

Common Misconceptions

“Isn’t this only for huge commercial buildings?” → No. Even small STRs qualify.

“Won’t I owe it all back later?” → Depreciation recapture exists, but you can 1031 or plan around it.

“I’m not a real estate professional — can I still use this?” → Yes, if you materially participate in an STR.

Closing Thoughts

Cost segregation isn’t just for developers or syndicators. It’s for physicians who want to take control of their finances and keep more of what they earn.

If you’ve bought real estate or plan to, this is a strategy worth understanding — and acting on early.

You already know how to master complex systems. This one happens to lower your taxes.