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Cost Segregation Basics

What actually happens during a cost segregation study

Five stages, four to six weeks, and a specific list of things we will ask you for.

Deprecio 10 July 2026 4 min read

Stage one: feasibility

Free, about twenty minutes. We look at basis, placed-in-service date, property type, entity structure and your passive activity position, and produce a benefit range and a fixed fee. You decide with numbers in front of you rather than a brochure.

Stage two: documents

The essential set is small: closing settlement statement, current depreciation schedule, most recent filed return for the owning entity, and the property address.

The helpful set is larger: purchase appraisal with any land allocation, county assessment, title commitment or survey, and — if you built or renovated — drawings, the general contractor's schedule of values, AIA pay applications, the change order log and subcontractor invoices.

Missing records are not a blocker. They shift weight onto direct takeoff and published cost data, which the report discloses.

Stage three: site inspection

An engineer walks the property, photographs conditions, measures and counts, opens the mechanical and electrical rooms, and interviews whoever knows the building's history. This is where the things documents miss turn up: the addition nobody capitalised separately, the roof replaced in 2019 that is still on the schedule, the panel feeding tenant equipment that was never broken out.

The inspection is one of the thirteen elements the IRS audit guide looks for. Where travel is genuinely impractical we run a documented virtual inspection with a guided walkthrough and a defined photo protocol, and say so in the report.

Stage four: engineering and costing

Components are taken off and priced. Where actual construction records exist, we use direct costs — the most reliable method and the one the audit guide prefers. Where they do not, we estimate from published unit cost data adjusted for location, vintage and quality, and reconcile the total back to your actual capitalised basis so nothing is created or lost.

Each component is then classified with a citation: the asset class, the regulation or case supporting personal property treatment, and the reasoning.

Stage five: report and filing

You get a draft to review, then a bound report containing the narrative, methodology, complete asset detail by recovery period and placed-in-service date, the photographic record, citations and the basis reconciliation.

Your preparer gets what they need to file: Form 4562 detail for a current-year property, or Form 3115 with the section 481(a) computation for a look-back. We take their questions directly at no extra charge, and we support the position if the return is examined.

Where this stops. This article is general information, not tax advice, and it cannot account for your basis, your entity, your participation or your state. A free feasibility review takes twenty minutes and gives you an answer specific to your property.

Book a feasibility call  Send us the property
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The study is one piece. We can handle the rest of the return.

Deprecio is part of the Shurek Accounting & Tax family of brands. If you want the study and the tax work under one roof — the return, the Form 3115, entity structure, quarterly estimates, multi-state filings — that is a single engagement, not a hand-off between two firms.

No-cost feasibility review

Find out what your building is hiding.

A feasibility review is free and takes about twenty minutes. Bring the closing statement and the depreciation schedule; we will tell you plainly whether a study pays for itself.

Book a 20-minute call