Cost segregation software is spreading fast, and much of it now leans on artificial intelligence to speed up the process. For real estate investors, that raises a practical question: does a faster study still hold up if the property is ever audited?
Brian Kiczula, founder of CostSegRx, an engineering-based cost segregation firm, says AI is a genuine asset in his field, but only when it works alongside an engineer, not instead of one. Investors evaluating any provider, he says, should understand exactly where the technology helps and where it can quietly get things wrong.
The Documentation Still Comes First
Before any software touches a property, Kiczula says the basics have to be right. That means confirming the date the property was contracted, the date it was placed in service, and the true cost basis, not just the purchase price listed on a closing statement.
The closing statement itself needs a close read. Furniture, fixtures, equipment, seller concessions, and who covered certain transaction fees can all affect what belongs in the basis. Skip that step and an AI tool has nothing solid to build a study on, no matter how advanced the software is.
Land Allocation Is Where AI Often Gets It Wrong
One shortcut Kiczula sees often: software that pulls a land allocation percentage straight from county tax records. It sounds efficient, but county figures are not always accurate for a specific property. He points to buildings in expensive urban markets, where the recorded land allocation can run unusually high relative to the purchase price. Apply that number automatically and the study starts on a flawed foundation.
The same risk shows up when a system asks a user to simply select a property type, an apartment complex or an office building, rather than identifying the specific components actually inside it. A generic label does not capture what makes a building’s depreciation profile unique.
What to Ask Before You Hire a Provider
Kiczula suggests investors ask any provider a few direct questions before signing on. Is an engineer reviewing the property, or is the output generated entirely from data entered into a portal? How is the land allocation determined, and is it verified against anything beyond county records? What supporting documentation backs up each line item in the report?
He notes that a one-page report listing figures with no backup is easy for an IRS engineer to challenge. Reports built on real documentation, tied to actual dates, costs, and components, hold up far better if a return is examined years later. Because audits on these studies often surface three or four years after filing, a study that looks fine today needs to still hold up down the road.
Where AI Actually Helps
None of this means Kiczula is skeptical of the technology itself. He uses AI daily to review lengthy appraisals, asking it to confirm whether a land allocation appears in a document that might run 200 pages, work that used to take much longer to do by hand. He also uses it to help confirm structural details on a property before a site visit.
His outlook for the next several years mirrors what has happened in manufacturing: more automation handling repetitive tasks, with specialists and engineers still overseeing the work and making the judgment calls that a study depends on. The tools get better, but the review does not disappear.
For investors, the takeaway is straightforward. AI can speed up parts of a cost segregation study, but it cannot replace an engineer’s eye on the documentation, the land allocation, and the specific components inside a building. Anyone evaluating a provider should ask how those pieces are handled before assuming a fast turnaround means a defensible one.
CostSegRx works with real estate investors nationwide who want a study built on documentation an engineer has actually reviewed. Investors can request a complimentary estimate of benefit through the firm’s free estimate page before deciding whether a full study makes sense.
About CostSegRx: CostSegRx is an engineering-based cost segregation firm led by Brian Kiczula, a member of the American Society of Cost Segregation Professionals. The firm works with residential and commercial real estate investors nationwide. CostSegRx provides complimentary estimates of benefit and supports investors and their CPAs through the full reporting process. Learn more at costsegrx.com or call (888) 850-4155.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
Disclosure: Individuals or companies mentioned may have a commercial relationship with KeyCrew.
