📄 FAQ Sheet: Top 10 Questions About Cost Segregation
1. What is cost segregation?
Cost segregation is a tax strategy that reclassifies building components into shorter depreciation categories (5, 7, or 15 years instead of 39 years), accelerating deductions and reducing current tax liability.
2. How much can I save?
Savings vary by property type, size, and cost basis. On average, 20–40% of a building’s depreciable basis can be reclassified, often producing tens or hundreds of thousands in tax deferrals.
3. What types of properties qualify?
Virtually all income-producing properties qualify — from multifamily and retail to warehouses, office buildings, and even tenant improvements.
4. Does the IRS recognize cost segregation?
Yes. Cost segregation is fully recognized by the IRS, outlined in the Cost Segregation Audit Technique Guide. When prepared properly by qualified engineers, studies are considered credible.
5. What about audit risk?
A properly documented study does not increase audit risk. In fact, a detailed report prepared under IRS guidelines strengthens your position if ever reviewed.
6. How much does a study cost?
Fees depend on property size, complexity, and scope. Many studies pay for themselves within the first year through tax savings, creating a strong return on investment.
7. What’s the Return on Investment on a cost segregation study?
Typical Return on Investment ranges from 10x to 100x the fee. Many owners recover the entire cost of the study in the first year of filing.
8. Do I need original construction records or blueprints?
Not always. While construction documents are ideal, experienced professionals can often use closing statements, appraisals, photos, and site visits.
9. Can I do a study on a property I bought years ago?
Yes. “Look-back” studies allow you to catch up missed depreciation in the current year without amending prior returns.
10. Who should perform the study?
The IRS recommends that cost segregation studies be conducted by professionals with both engineering and tax knowledge.