Cost Segregation: The Tax Strategy That Feels Like Getting Your Down Payment Back from the IRS

Prefer the 2-minute version? Watch my IG video

After that video dropped, my inbox filled with Investors asking how to actually use this strategy — so here’s the deeper dive. 

TL;DR

Cost segregation is a legal way for real estate Investors to speed up depreciation on rental properties — which can dramatically reduce your tax bill. In some cases, it feels like you’re getting your down payment back from the IRS. It works for single-family homes, not just commercial buildings, and is especially powerful if you’ve had a high-income year. The clock is ticking though — changes are coming.

Ever Wish You Could Get Your Down Payment Back from the IRS?

Sounds sketchy, right? But cost segregation is 100% legal, surprisingly underused, and extremely powerful — especially for Austin real estate Investors with big income years.

And no, you don’t have to be a mega landlord or a tax genius to use it.This isn’t a loophole.

It’s tax law, and it’s one of the best-kept secrets in real estate.

What Is Cost Segregation (in Real People Terms)?

When you buy an investment property, the IRS lets you depreciate it slowly — like over 27.5 years if it’s residential.

But with cost segregation, you break that property down into components like:

✅ Carpets
✅ Appliances
✅ Landscaping
✅ Driveways

All of these can be written off faster than the structure itself.

That’s called accelerated depreciation rental property — and it can mean way bigger write-offs right now.

Let’s Talk Real Numbers

Here’s a quick example:

• Bought a property for $400,000

• Put $80,000 down

• Without cost segregation: ~$11K/year in depreciation

• With cost segregation:
  ~$48K write-off (interior items)
  $32K write-off (exterior improvements)
  **$88K total depreciation** in Year 1
  

➡️ That’s more than the down payment. From a tax write-off.
➡️ That's how smart Investors reduce taxes legally.

Why This Strategy Matters Right Now

Here’s the kicker: current tax law allows 100% bonus depreciation — meaning you can take the full deduction in Year 1.

But that’s on the chopping block. Congress is actively debating it. If you’ve had a high-income year, this may be your last chance to use this strategy to full effect.

Does This Work for Residential Rentals?

Yes. This isn’t just for commercial buildings or giant apartment complexes.

Cost segregation works for: 

✅ Single-family rentals
✅ Duplexes
✅ Short-term rentals (with the right setup)
✅ New construction or newly acquired properties

What I Didn’t Say in the Video

Cost segregation isn’t just about this year’s taxes — it’s about long-term planning.

Here’s what else you should know:

• It’s a deferral, not a dodge — you’re pushing the tax bill down the road.
  

• The strategy is especially useful if you’re planning to sell in a few years, do a 1031 exchange, or plan for retirement cash flow.
  

• It’s IRS-approved. You’ll need a cost segregation study from a CPA or engineer to back it up.
  

And yes, it’s absolutely legal. This isn’t creative accounting. It’s just smart investing.

Want to dig deeper? Read IRS Pub 946 on depreciation for rental property.

Who Should Be Using Cost Segregation? If you’re:

• An Austin Investor buying in 2024–2025
  

• Sitting on a high-income year
  

• Staring down a big tax bill
  

• Adding a new rental property to your portfolio
  

• Interested in accelerated depreciation rental property
  

• Looking to scale your portfolio smartly

👉 This strategy should absolutely be on your radar. Here’s the IRS Code (if you’re bored and can’t sleep).

📲 DM me the word DOWNPAYMENT and I’ll connect you with a top-tier CPA who knows how to make this work for real estate.

If you’re planning your 2025 investment strategy, don’t wait until tax season — let’s get ahead of it now.