A Guide to Cost Segregation for Self-Storage Investors
- Greg Pacioli
- Aug 7
- 5 min read
Why Smart Self-Storage Owners Don’t Wait on Cost Segregation.
You didn’t invest in self-storage for slow returns.
Whether you’re building a new facility or acquiring your third location, every dollar counts.
Knowing how to effectively use cost segregation can lead to some impressive depreciation deductions that can really enhance your financial results.
In this guide, we’ll break down how cost segregation works specifically for self-storage investors, how much you could save, and how to choose the right company to do it. If you own or plan to own a facility, this is a tax strategy you can’t afford to ignore.
What is Cost Segregation for Self-Storage Investors?
Cost segregation is a smart tax planning strategy that allows you to break down different components of a property into shorter depreciation schedules, rather than sticking with the usual 39-year timeline for commercial real estate.
When it comes to self-storage properties, this means identifying specific assets that can be depreciated more quickly.
For instance, interior partitions can be depreciated over a shorter period because they’re removable and can be adjusted to create different-sized units.
This approach to high depreciation assets can significantly boost your deductions in the early years of ownership, especially when you combine it with 100% bonus depreciation.
Which Self-Storage Investors Does Cost Seg Work Well With?
Self-storage developers who have recently built new facilities
Investors looking to buy existing properties and make renovations
Owners managing portfolios with multiple State locations
Participants in 1031 exchanges aiming to offset significant gains
Real estate syndicators who want to boost returns for investors
5 Benefits of Cost Segregation for Self-Storage
Increased Cash Flow
Accelerated depreciation creates paper losses that reduce taxable income, keeping more money for your next investment.
Bonus Depreciation Opportunity
With current tax laws (and the reinstatement of 100% bonus depreciation), short-life assets can be fully deducted in year-one.
Offset Passive Income
For many investors, cost seg losses can offset income from other rental or passive ventures.
Favorable for Syndications
Boosts investor returns by front-loading tax benefits during early holding years.
Partial Asset Dispositions
If you’re replacing roofs, lighting, or fencing, a study allows you to write off the undepreciated portion of the disposed asset.
What Components of a Self-Storage Facility Qualify?
A typical self-storage facility has many components that can be reclassified for faster depreciation, based on IRS cost segregation guidelines and MACRS (Modified Accelerated Cost Recovery System) classifications:
5-Year Property (tangible items not integral to the building)
Security Systems (surveillance cameras, alarms, access keypads)
Lighting (pole lighting, wall packs, timers)
HVAC Equipment (for climate-controlled storage units)
Electrical (panels, outlets, cabling dedicated to individual units)
Moveable Wall Partitions (interior locker dividers)
Interior Roll-Up Doors (if not structural)
Cabinetry and Shelving (if removable or tenant-related)
Carpet, Vinyl, or Wood Laminate Flooring (non-permanent coverings)
Fire Extinguishers (portable equipment)
Signage (non-structural, freestanding, or interior signage)
7-Year Property (may apply in situations for certain equipment)
None typically found in standard self-storage facilities (Most qualifying assets fall under 5 or 15 years unless there is specialty equipment.)
15-Year Property (Generally site improvements and land enhancements)
Site Work (grading, asphalt, driveways, sidewalks)
Fencing and Gates (chain-link, barbed wire, electric gates)
Landscaping (trees, sod, irrigation systems)
Notes for Accuracy:
Structural components (like load-bearing walls, roofs, or foundational electrical/plumbing) remain 39-year property.
IRS Publication 946 and the Cost Segregation Audit Techniques Guide are useful references.
Always confirm asset classifications with a qualified provider using engineering-based methodology for audit defense.
A quality study will also include detailed engineering-based allocations to support each item’s classification under IRS rules.
Self-Storage Real-World Example
Property: $2.2M newly constructed self-storage facility
Without Cost Seg:
~$56,000 depreciation in Year 1
With Cost Seg + Bonus Depreciation: ~$480,000 in Year 1
Result: ~$424,000 additional paper loss to offset W2 income
Cost Segregation Questions from Self-Storage Investors
Does a cost segregation study increase the risk of an IRS audit?
Not at all, when executed correctly, a cost segregation study doesn’t heighten your chances of an audit. In fact, the IRS has clearly acknowledged cost segregation as a legitimate and compliant tax strategy. That said, the quality of the study is crucial.
When's the best time to kick off a cost segregation study for my storage facility?
Timing is everything if you want to maximize the benefits of your cost segregation study. Here are some ideal moments to consider:
✅ Right after you purchase or complete new construction
✅ Before you file your 1st-year tax return
(or retroactively using Form 3115)
✅ Before you dive into major renovations or replace any assets
(this helps with partial asset dispositions)
✅ During a 1031 exchange or while planning your estate Getting this done early can lead to quicker write-offs, improved cash flow, and better documentation.
How do I choose the right cost segregation firm for my self-storage?
Choosing the right cost seg firm can be a bit tricky, especially since not all providers are equal. Here are some things to consider when looking for a reliable cost seg company for your self-storage needs:
✅ Look for a firm with proven experience in handling self-storage properties.
✅ They should use engineering-based methods rather than just rough estimates.
✅ Transparent pricing is a must, flat-rate fees or clear costs are ideal.
✅ Make sure they can operate remotely or across the nation.
✅ Check for reviews or case studies specifically related to self-storage.
✅ They should also be knowledgeable about bonus depreciation, Form 3115, and audit documentation.
Is my self-storage facility too small for a cost segregation study?
Chances are, it’s not! If your property is valued at ~$500,000+, a cost segregation study could really pay off, often saving you tens of thousands in taxes. There are plenty of boutique firms out there that specialize in studies for small to midsize facilities, and they usually charge flat fees.
Can I do cost segregation on a property I’ve owned for years?
Absolutely, you can still take advantage of it! By conducting a lookback study, you can retroactively claim any missed depreciation by filing Form 3115 along with your current tax return. This can be particularly beneficial for properties you've held for a long time or those that have seen recent upgrades.
How long does a cost segregation study take?
Typically, most cost segregation studies take about 2 to 4 weeks to complete, but this can change based on a few different factors. The size and complexity of the property are significant, as larger or more complicated facilities need a more thorough analysis. How easily you can access the site for photos or physical inspections can also affect the timeline. If you have a filing deadline looming, many companies offer expedited or rush processing to help you stay on schedule.
In Closing
Definitely consider cost segregation for high depreciation properties such as self-storage.
As a self-storage investor if you're ready to dive into your options, get things moving by requesting a free estimate from a qualified cost seg company. The sooner you take action, the quicker you can tap into the tax savings.
Check out trusted cost segregation providers at FindCostSeg our online directory where you can compare firms, explore case studies, and connect with experts in the self-storage industry.
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