Question 1

What is a cost segregation study and how does it work?

Accepted Answer

A cost segregation study is an IRS-approved tax strategy that accelerates depreciation deductions by reclassifying components of a commercial or residential building from 27.5 or 39-year property to 5, 7, or 15-year property. This front-loads your tax benefits, significantly reducing your tax liability in the early years of ownership. Our engineers conduct a detailed analysis of your property's construction costs, identifying personal property and land improvements that qualify for accelerated depreciation schedules.

Question 2

What types of properties qualify for cost segregation?

Accepted Answer

Most commercial and residential income-producing properties qualify, including:

Commercial Properties: Office buildings, retail centers, warehouses, restaurants, hotels, self-storage facilities
Residential: Apartment complexes, condominiums, senior living facilities
Industrial: Manufacturing facilities, distribution centers
Special Use: Medical facilities, car dealerships, gas stations, auto repair shops

Generally, properties valued at $500,000 or more provide the best return on investment, though smaller properties can still benefit significantly.

Question 3

How much does a cost segregation study cost?

Accepted Answer

The cost of a cost segregation study typically ranges from $5,000 to $20,000, depending on the property's complexity, size, and value. However, the tax savings usually far exceed the study cost - most clients see a 10:1 to 30:1 return on investment in the first year alone. For example, a $3 million commercial building might cost $8,000 to study but generate $200,000+ in accelerated deductions. We provide upfront cost estimates after reviewing your property details, and many clients find the study pays for itself many times over in the first tax year.

Question 4

Can I do cost segregation on a property I bought years ago?

Accepted Answer

Yes! You can perform a cost segregation study on a property you've owned for years through a "look-back" study. The IRS allows you to capture all the missed depreciation from prior years in a single year using Form 3115 (Change in Accounting Method). This means you can receive a significant tax benefit without having to amend previous returns. Many of our clients discover this opportunity 3-5 years after purchase and recapture hundreds of thousands in accelerated deductions they would have otherwise missed.

Question 5

Is cost segregation IRS compliant and audit-safe?

Accepted Answer

Absolutely. Cost segregation is an IRS-approved tax strategy explicitly recognized in the Tax Court and IRS Audit Technique Guides. At Engineered Tax Services, we've conducted over 10,000 studies with a proven track record of IRS compliance. Our studies are performed by licensed engineers following IRS guidelines and include comprehensive documentation to support every classification. We stand behind our work - if your study is questioned during an audit, we provide full support and documentation to defend the classifications. Our methodology has been validated through numerous IRS audits with successful outcomes.

Question 6

How long does a cost segregation study take?

Accepted Answer

A typical cost segregation study takes 4-8 weeks from engagement to final report delivery. The timeline depends on several factors:

Week 1-2: Initial data collection (construction documents, blueprints, invoices)
Week 2-4: On-site inspection and engineering analysis
Week 4-6: Detailed cost allocation and report preparation
Week 6-8: Final review and delivery

We can expedite studies for time-sensitive situations, such as year-end tax planning. Rush services are available for an additional fee.

Question 7

What's the difference between cost segregation and bonus depreciation?

Accepted Answer

Cost segregation and bonus depreciation work together but serve different purposes:

Cost Segregation: Reclassifies building components into shorter depreciation lives (5, 7, 15 years instead of 27.5/39 years). It identifies WHAT assets qualify for faster depreciation.

Bonus Depreciation: Allows you to deduct a percentage (currently phasing down from 100%) of qualifying assets in the first year. It determines HOW MUCH you can deduct immediately.

When combined, cost segregation identifies the qualifying property, and bonus depreciation maximizes your first-year deduction. This combination can generate deductions of 20-40% of the building's value in year one.

Question 8

Do I need an engineer to perform cost segregation?

Accepted Answer

While the IRS doesn't explicitly require an engineer, using licensed engineers is critical for audit protection and accuracy. The IRS Audit Technique Guide specifically references engineering-based methodologies as the gold standard. Non-engineer studies often rely on estimation techniques that don't withstand IRS scrutiny.

At Engineered Tax Services, all our studies are performed by licensed Professional Engineers (PE) who:
- Conduct physical site inspections
- Review actual construction documents
- Apply engineering principles to cost allocation
- Provide detailed, defensible documentation

This engineering-based approach provides the highest level of accuracy and audit protection.

Question 9

What documentation will I receive?

Accepted Answer

You'll receive a comprehensive cost segregation study report that includes:

Executive Summary: Overview of tax benefits and methodology
Detailed Asset Listing: Every reclassified component with photos and descriptions
Depreciation Schedules: Year-by-year depreciation calculations
Engineering Analysis: Technical justification for classifications
IRS Forms: Form 3115 and supporting schedules ready for filing
Quality Assurance Review: Third-party verification of methodology
Photographic Documentation: Visual evidence of all reclassified assets

All documentation is organized to support your tax return and provide complete audit protection. The report typically ranges from 50-200 pages depending on property complexity.

Question 10

Can I do cost segregation on renovations or improvements?

Accepted Answer

Yes! Cost segregation applies to renovations, improvements, and building additions - not just new construction or purchases. In fact, renovations often provide excellent opportunities for cost segregation because:

- Tenant improvements can be reclassified to 5-year property
- Restoration work includes many personal property components
- Qualified Improvement Property (QIP) now qualifies for bonus depreciation
- Partial asset dispositions can be identified to write off replaced components

Whether you're remodeling a restaurant, renovating an office building, or expanding a warehouse, cost segregation can significantly accelerate your depreciation deductions on the improvement costs.

Question 11

What's the average ROI on a cost segregation study?

Accepted Answer

The average return on investment for a cost segregation study is 15:1 to 25:1 in first-year tax savings alone. For example:

$3M Commercial Building:
- Study Cost: $8,000
- First-Year Tax Savings: $75,000 - $150,000
- ROI: 9:1 to 19:1

$10M Apartment Complex:
- Study Cost: $15,000
- First-Year Tax Savings: $350,000 - $500,000
- ROI: 23:1 to 33:1

The actual ROI depends on your property value, tax bracket, and the percentage of assets that can be reclassified. With over 10,000 studies completed at Engineered Tax Services, we consistently deliver substantial returns that far exceed the study investment.

Question 12

Can I apply cost segregation to multiple properties?

Accepted Answer

Absolutely! Many of our most successful clients apply cost segregation across their entire real estate portfolio. Multi-property studies often provide:

Cost Efficiency: Reduced per-property study costs through economies of scale
Strategic Tax Planning: Stagger studies across tax years to optimize deductions
Portfolio Optimization: Identify which properties offer the highest ROI
Streamlined Process: Simplified data collection and reporting

Whether you own 2 properties or 200, we can develop a cost segregation strategy that maximizes your overall tax benefits. We've worked with real estate investors, REITs, and property management companies to deploy cost segregation across thousands of properties nationwide.

Tax Strategy

Cost Segregation Services

What is Cost Segregation?

Key Benefits

Property Types & Potential Savings

Apartment Building

Asset Category Breakdown

Hotel & Resorts

Asset Category Breakdown

Office Building

Asset Category Breakdown

Self Storage Facilities

Asset Category Breakdown

Medical Office/Clinic

Asset Category Breakdown

Retail Strip Mall

Asset Category Breakdown

Real-World Success Stories

Cost Segregation Analysis for a Retail Building in Rapid City, South Dakota

Cost Segregation Analysis for a Self-Storage Facility in Fairburn, Georgia

Cost Segregation Analysis for a Self-Storage Facility in Sebring, Florida

Cost Segregation Analysis for an Apartment Building in Boerne, Texas

What to Expect: Our Process

Initial Consultation & Engagement

Property Site Visit & Engineering Analysis

Detailed Cost Analysis & Report Preparation

CPA Coordination & Tax Filing Integration

Audit Support & Future Consultation

Ready to Maximize Your Tax Savings?

Cost Segregation - Frequently Asked Questions