Podcast Summary:

Tax Smart Real Estate Investors Podcast
Episode 357: Cost Segregation Done Right: How In-Person Engineering Maximizes ROI with Edward Griffith
Release Date: December 9, 2025
Host: Hall CPA
Guest: Edward Griffith, Director of Cost Segregation, Hall CPA

Episode Overview

This episode dives deep into the nuts and bolts of cost segregation for real estate investors. Host Hall CPA welcomes Edward Griffith, their new Director of Cost Segregation, to break down the engineering and tax strategy behind cost seg studies, what makes an in-person approach superior, and how recent IRS guidance changes the landscape. The conversation covers when and how to perform cost segregation, what property types see the highest ROI, the difference between software and engineering-based studies, key timing issues, real-life scenarios, and actionable advice for investors.

Key Discussion Points & Insights

1. Introduction to Edward Griffith and Cost Segregation

• Edward’s Background: 15 years of experience in property analysis and cost segregation, previously ran a national firm’s cost seg practice. (01:58)
• What is Cost Segregation?
  • "The whole point really obviously is just to move as much stuff from that 39 year or 27 and a half year bucket down to the five and 15 year bucket." — Edward Griffith [02:48]
  • Cost segregation breaks down a property into components that can be depreciated over 5, 15, or 27.5/39 years, instead of just the longest depreciation schedule.

2. Why Cost Seg is So Powerful

• Accelerating depreciation saves significant tax dollars, especially by leveraging bonus depreciation.
• Edwards explains that components like plugs, drywall, fixtures, etc., qualify for shorter-life buckets when broken out.
• Critical for strategies involving Real Estate Professional Status (REPS) and short-term rentals. [03:56]

3. Which Properties See the Best ROI from Cost Seg?

• General Rule: Properties with significant site improvements (parking lots, landscaping) yield higher ROI.
  • "Houses are usually 20 to 30%...RV parks, mobile home parks, those kinds of things, you can really start seeing 60%, 70%, just really large benefits." — Edward Griffith [04:50]
• Highest ROI: Mobile home parks, RV parks, properties with lots of land improvements.
• Lower ROI: Warehouses, due to minimal reclassifiable assets ("just a shell").
• Key tip: The more complex the property’s site improvements, the greater the depreciation benefit.

4. Depreciating Land Improvements vs. Land

• Clarification: Land itself is not depreciable, but landscaping/land improvements are.
  • "Landscaping and land improvements, you can. So if we're adding sod or seeding the grass...we absolutely can and can depreciate." — Edward Griffith [07:57]
• Be diligent about the purchase price allocation between depreciable assets and land value, especially in high-land-value markets.

5. In-Person Engineering vs. Software-Based Cost Seg Studies

• Software Studies:
  • Originated to provide cheap, quick options for small investments.
  • Typically do not check all the IRS Audit Technique Guide (ATG) boxes (methodology, site visit, documentation, etc.).
  • Riskier for audit defense under recent IRS scrutiny.
• In-Person Studies:
  • Satisfy more (often all) ATG requirements, provide defensible, higher quality results, and usually yield better financial benefit due to more accurate detail.
  • "Usually when you're on site, the good news is you can usually pick up a few extra percentage points in terms of your benefit." — Edward Griffith [09:12]
  • IRS is reviewing these more closely with a new Audit Technique Guide, making compliance critical.
• Quick Summary:
  • "An in-person study is probably going to hit all the boxes that the IRS can look for in the Audit Technique Guide...you'll have an easier time when you go to audit." — Host [13:12]

6. Timing: When to Do a Cost Seg Study?

• Common myths: You don’t need to do a cost seg before purchase or in the placement year.
  • "You usually want it done a month or so before you're going to file." — Edward Griffith [14:24]
• You can do "look-back" studies for properties acquired in earlier years.
• Preferably perform the study after renovations to avoid double-counting, unless renovations occur much later.
  • "Usually the best scenario is...wait till everything's set and done." [14:44–16:05]

7. Treatment of Disposed Assets in Renovations (Partial Asset Dispositions, PADs)

• Partial asset disposition is generally not available if disposition is in the same year as placement in service.
  • "Most people, they're just not going to do a partial asset disposition if it's the same year that they're placing it in service." — Edward Griffith [16:34]
• If disposed in a later year, PAD rules may apply, but there’s a gray area for small value assets. [16:05–17:19]

8. Step-by-Step Cost Segregation Process with Hall CPA

• Initial Call: Assess property, fit, and projected benefits.
• Proposal/Estimate: Upfront fee and estimated tax benefits.
• Engagement: Sign engagement, schedule site visit.
• Site Visit: Qualified professional documents building; often uncovers additional reclassifiable assets.
• Report Compilation: Robust, IRS-defensible 50–70 page report with executive summary and line-by-line breakdown.
• Timeline: Usually 1 month from start to finish.
  • "You have the report done and you'll know how much money you're going to save on your taxes." — Edward Griffith [17:59]

9. 2025 Bonus Depreciation & Regulatory Changes

• New Law: Return to 100% bonus depreciation for assets placed in service after Jan 19, 2025. (It had been phasing down to 40% in 2025.)
  • "Huge win for all real estate investors out there." — Edward Griffith [04:50]
• If You Closed Before Jan 19, 2025:
  • Most likely subject to old 40% rule, unless you qualify via component election, 10% safe harbor, or demonstrate the contract was non-binding.
  • "There's a lot of different workarounds. It's mostly on a case-by-case basis." — Edward Griffith [19:46]

10. Edward's Top Two Cost Seg Advice Points for Investors

• 1. Think about land improvements: Know the makeup of your purchase for max benefit.
• 2. Know the new IRS scrutiny: In-person, full-engineering studies will be worth the cost for audit defense and maximizing ROI.
  • "Just making sure that you understand kind of the new set of risks moving forward..." — Edward Griffith [21:49]

Notable Quotes & Memorable Moments

• "If you're going to be doing cost segregation anytime this year, in 2025 or beyond, this is an episode you don't want to miss." — Host [00:34]
• "You definitely can’t depreciate land, but landscaping and land improvements, you can. So if we're adding sod or seeding the grass...we absolutely can." — Edward Griffith [07:57]
• "Usually when you're on site, the good news is you can usually pick up a few extra percentage points in terms of your benefit." — Edward Griffith [09:12]
• "If you do what they're looking for, then you're not going to have as many problems." — Edward Griffith [13:40]
• "The important part is the front page has a summary on it and that's where you're going to find your five year and 15 year...that's what your CPA is going to want to see." — Edward Griffith [17:59]

Timestamps for Important Segments

• 01:58 — Edward Griffith’s background and intro to cost segregation
• 02:48 — What is a cost seg study and why it matters
• 04:50 — What property types offer the best ROI in cost seg
• 07:57 — Land vs. land improvements depreciation explained
• 09:12–13:12 — In-person engineering vs. software studies & Audit Technique Guide
• 14:24 — Timing: When to perform a cost seg study (including after renovations)
• 16:05 — Partial asset dispositions in renovations
• 17:59 — Cost seg process for Hall CPA clients: Step-by-step breakdown
• 19:40–21:37 — How recent bonus depreciation law changes affect current/planned investments
• 21:49–22:28 — Edward’s key advice for investors considering cost seg

Takeaway for Investors

• In-person engineering-based cost segregation studies are now more valuable (and necessary) than ever, both for maximizing tax benefits and withstanding increased IRS scrutiny.
• Understanding land improvements, timing your study around renovations, and knowing how to navigate new bonus depreciation rules are all essential for optimal results in 2025 and beyond.

For more info and to book a call with Hall CPA for cost segregation, visit TheRealEstateCPA.com/Podcast.