Cost segregation
How an engineering-based study actually works
Not a percentage from a table. A building taken apart component by component, each piece priced and assigned to the recovery period the Code says it belongs on.
The short version
One line on your books is hiding hundreds of assets
Your building depreciates on a single 39-year line (27.5 for rentals). But carpet isn't a roof, and a parking lot isn't a foundation. A study makes that distinction defensible — and moves the short-life pieces onto 5, 7 and 15-year schedules where 100% bonus can write them off now.
Start to finish
What happens between the first call and the filed return
Step 1 · Feasibility
Free, 20 minutes
We look at your basis, placed-in-service date, entity and tax position, then tell you the expected range and whether a study clears its own fee. You decide with real numbers in front of you.
Step 2 · Documents
Send what you have
Closing statement, depreciation schedule, and any construction records — drawings, pay applications, change orders. No records? We shift to direct takeoff and published cost data, and the report says so.
Step 3 · Inspection
We walk the building
Photograph and measure, take off components, and record what nobody documented — the extra panel, the 2019 repaving, the addition. Where travel is impractical, a structured virtual inspection.
Step 4 · Engineering
Costing & classification
Every component priced and assigned to its recovery period under the Code and the case law, reconciled back to your capitalized basis, each call supported with a citation.
Step 5 · Report & filing
You and your CPA are set
A bound report with the asset detail, photos and legal support — plus the Form 4562 detail or the Form 3115 and section 481(a) schedule your preparer needs. We answer their questions at no extra charge.
The detail, if you want it
How we build to the IRS standard
The surface version is above. Open any section below for the engineering and the legal basis — the same depth a sharp CPA will want to see.
The IRS audit guide lists what examiners look for. Every report we issue addresses all of them:
- A preparer with construction and engineering expertise, not just tax knowledge
- A detailed description of the methodology used and why
- Use of an appropriate costing method — direct takeoff, or a documented estimate where records are missing
- Reconciliation of the total costed to the actual capitalized basis
- Explanation of the legal basis for each classification, with citations
- Photographs and a written record of the site inspection
- A complete fixed-asset listing organized by recovery period
- Treatment of indirect costs allocated across components
- Identification of section 1245 versus section 1250 property
- Explanation of how land and non-depreciable costs were carved out
- Documentation of the placed-in-service date for each asset group
- Consideration of the tangible property regulations and prior dispositions
- A report that a third party can follow end to end without calling the author
Almost every classification reduces to one question: is this component personal property, or a structural part of the building?
1245 property recovers over 5 or 7 years and is fully bonus-eligible. 1250 property — the building and its structure — recovers over 27.5 or 39 years. Land improvements sit in between: 1250 property, but a 15-year life and bonus-eligible.
Which side a component lands on isn't opinion. The tests come from Treas. Reg. §1.48-1 and the case law: is it movable without damage, does it serve the building or a business function inside it, how permanently is it attached. Answered component by component, in writing.
The framework traces to Hospital Corporation of America v. Commissioner (1997), which confirmed that property qualifying as tangible personal property keeps that character for depreciation.
The IRS then published the Cost Segregation Audit Techniques Guide — public, and the exact standard your study is measured against. We build to it explicitly rather than claiming a proprietary method.
A bound report: engineering narrative, methodology, a full asset schedule by recovery period and placed-in-service date, the inspection photos, legal citations, and the reconciliation to your basis.
Your preparer gets the filing schedules — Form 4562 for a current-year property, or Form 3115 and the 481(a) computation for a look-back.
Questions
What information do you need from me to start?
At minimum: the closing settlement statement, the current depreciation schedule, and the property address. If you built or renovated, construction records help enormously — drawings, pay applications, change orders, the general contractor's schedule of values. If none of that exists, we can still do the work; we simply shift more weight onto direct takeoff and published cost data, and the report explains why.
How long does a study take?
Four to six weeks for most properties from the day documents are complete. Rush work is possible around filing deadlines and extension dates — tell us the date you are working toward and we will tell you honestly whether we can hold it.
Do you need to visit the property?
For most commercial buildings, yes. The site inspection is one of the thirteen elements the IRS looks for, and it is where a surprising amount of value is found — the panel schedule nobody had, the addition nobody documented, the paving that was replaced in 2019. Where travel is impractical, we run a structured virtual inspection with a guided walkthrough and detailed photo protocol, and the report discloses the method used.
What if I already had a study done years ago?
Send it over. We will read it and tell you plainly whether it holds up. Older studies frequently missed land improvements, ignored partial dispositions, or used percentage rules of thumb that would not survive scrutiny today. A look-back review is inexpensive relative to what it sometimes finds.
Will a study increase my audit risk?
A well-documented engineering-based study does not, in our experience, invite examination — but a poorly documented one gives an examiner something to pull on. The IRS publishes the guide it uses to evaluate these studies. We write to that guide, cite authority for each classification, and include the photographic record. If your return is examined, the report is designed to answer the questions without us having to reconstruct anything.
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.