Straight Answers to the Questions Property Owners Ask Most.
No sales language. No hedging. Just honest answers to what property owners actually want to know about cost segregation, IRS audits, and the free proposal process.
A cost segregation study lets you write off parts of your building much faster than normal — qualifying components can be deducted in 5, 7 or 15 years instead of 39. With today's 100% bonus depreciation, many of those deductions happen in Year 1.
When you buy or build a commercial or investment property, the IRS normally requires you to depreciate the entire building over 27.5 years (residential rental) or 39 years (commercial). That means small, equal deductions spread across decades.
A cost segregation study changes that. It separates your building into individual components — flooring, specialty lighting, electrical systems, parking lots, landscaping — and assigns each one the depreciation life the IRS specifies. Components qualifying for 5-year, 7-year or 15-year depreciation can be fully deducted in Year 1 under current bonus depreciation rules.
The IRS has authorized this strategy since the Tax Reform Act of 1986 and published a 347-page Audit Technique Guide documenting exactly how it should be done. Cost Seg America performs every study using IRS Approaches 1 and 2 — the most thorough methodology the IRS recognizes.
Normal depreciation gives you a small, equal deduction every year for nearly four decades. Cost segregation moves qualifying parts of your building to a much shorter schedule — and with 100% bonus depreciation, you can take all of those deductions at once in Year 1.
Under standard depreciation, a $2 million commercial building generates roughly $51,000 per year in deductions for 39 years. Steady — but slow, and worth far less in today's dollars than money recovered now.
Cost segregation identifies the portions of that building the IRS allows on a faster schedule: 5-year and 7-year personal property such as specialty electrical, flooring, and fixtures; and 15-year land improvements such as parking lots, sidewalks, and landscaping. Those components become eligible for 100% bonus depreciation — full deduction in the year the study is completed.
That same $2 million building, properly studied, may produce $400,000 to $700,000 in Year 1 deductions instead of $51,000. The total depreciation does not change — the timing does. In tax planning, timing is everything.
Most studies produce $200,000 to $450,000 in additional Year 1 deductions per $1 million of property value. The free proposal we provide gives you the specific number for your property.
A properly engineered cost segregation study typically reclassifies 20% to 40% of a commercial building's depreciable value into 5-year or 15-year property. On a $1 million property at a 35% effective tax rate, that translates to $70,000 to $157,500 in real tax savings in Year 1 alone.
The difference between a Cost Seg America study and a software-modeled study is an additional $60,000 to $150,000 in recovered deductions per $1 million of property value. That gap exists because our team engineers the actual components of your building rather than applying industry averages.
The most accurate estimate is a free proposal built around your specific property — at no cost and with no obligation.
Flooring, specialty lighting, appliances, low-voltage systems, parking lots, sidewalks, and landscaping are the most common qualifying categories. The building shell, roof, HVAC, and standard plumbing stay on the 39-year schedule.
5-year personal property: Carpet and specialty flooring, appliances, dedicated electrical for specific equipment, low-voltage systems, data and telecom cabling, security systems, and certain plumbing fixtures tied to a business function.
15-year land improvements: Parking lots, sidewalks, fencing, landscaping, exterior lighting, and site utilities installed outside the building footprint.
39-year structural components: The building shell, roof, HVAC systems, standard plumbing, and elevators remain on their standard schedule.
A properly engineered study identifies the maximum qualifying components through direct analysis of your specific property — not software averages. That difference is where $60,000 to $150,000 per $1 million in deductions gets lost.
The One Big Beautiful Bill Act restored 100% bonus depreciation for qualified property placed in service after January 19, 2025. Every short-life component our study identifies — 5-year and 7-year personal property and 15-year land improvements — qualifies for full first-year deduction.
This is the most favorable depreciation environment in the history of cost segregation. A $5 million building with $1.5 million in reclassified components produces a $1.5 million deduction in the year the study is started. Your CPA makes the bonus depreciation election. We identify the components that make it possible.
The One Big Beautiful Bill Act restored 100% bonus depreciation for qualified property placed in service after January 19, 2025. Every short-life component our study identifies — 5-year personal property and 15-year land improvements — qualifies for full first-year deduction.
This is the most favorable depreciation environment in the history of cost segregation. A $5 million building with $1.5 million in reclassified components produces a $1.5 million deduction in the year the study is started. Your CPA makes the bonus depreciation election. We identify the components that make it possible.
Almost any commercial or investment real estate qualifies — apartment buildings, office buildings, hotels, warehouses, retail centers, medical offices, short-term rentals, self-storage, and more. If you own it and pay taxes on it, it is worth a conversation.
Any commercial or investment real estate property — anything other than your personal primary residence — is a candidate. This includes multi-family apartment complexes, commercial office buildings, retail centers and strip malls, hotels and hospitality properties, industrial facilities and warehouses, medical office buildings, self-storage facilities, short-term rentals, mixed-use properties, single-family rental homes, auto dealerships, assisted living facilities, manufacturing plants, cold storage facilities, and new construction of any type.
Cost Seg America has completed more than 16,000 studies across all of these property types in all 50 states.
Cost Seg America's minimum is $250,000. Below that threshold, the tax savings typically do not justify the study fee — and we will tell you that directly rather than take an engagement that does not make financial sense for you.
The economics improve substantially as property value increases. A $500,000 property may generate meaningful Year 1 deductions. A $2 million property may generate $400,000 to $900,000. A $10 million property can generate $2 million or more.
Below $250,000, the deductions produced typically do not exceed the study fee by a meaningful margin. If your situation does not pencil out, your free proposal will say so clearly — before you spend a dollar.
Almost certainly not. IRS Form 3115 lets you claim every year of missed depreciation in one lump sum this year — no amended returns required. Cost Seg America will go back up to 10 years on any purchase, new build, or renovation.
IRS Form 3115 — Change in Accounting Method — allows you to capture all prior-year accelerated depreciation in a single current-year filing. This mechanism, called a 481(a) adjustment, requires no amended returns and no IRS permission. Your CPA files the 3115. We provide the study.
Cost Seg America's standard is to go back up to 10 years from the date of acquisition, new construction completion, or major renovation — whichever applies to your situation. If you purchased a $3 million building in 2019 and never had a study done, those missed deductions are captured in one filing, in one tax year.
Yes — and the math is actually better for condos. Because you do not own the land under the building, your entire purchase price is depreciable. A higher percentage of your investment qualifies for accelerated depreciation.
For office condominiums and residential condominium units held as investments, the depreciable basis is 100% of the purchase price. The owner does not own the land — the condominium association does — so no land value reduction applies.
Reclassification percentages on condo properties are often more favorable than on comparable standalone buildings, where land value reduces the available basis. Cost Seg America applies this correctly by default on every condo engagement.
Yes — and STR owners have an additional advantage. If your guests stay an average of 7 days or less, your property may be exempt from the passive activity loss rules that limit other investors, meaning the full deduction may apply against your regular income.
Short-term rental properties with an average guest stay of 7 days or fewer are not automatically subject to the passive activity loss rules that cap how much depreciation most real estate investors can use in a given year. An owner who materially participates can potentially apply the full accelerated deduction against active income — without the annual passive loss limitation.
This is one of the most powerful and most misunderstood tax advantages available to STR investors. We address the 7-day rule and material participation requirements directly in every short-term rental proposal we produce.
No. Cost segregation is not aggressive tax planning. The IRS itself wrote a 347-page guide explaining exactly how these studies should be done. A properly documented study is not a red flag. A poorly documented one is.
Cost segregation is IRS-codified methodology established in the Tax Reform Act of 1986. The IRS publishes its own Audit Technique Guide describing every acceptable approach and the documentation standards their examiners use to evaluate study quality. It is the most thoroughly documented depreciation strategy in the entire tax code.
The studies that attract scrutiny are the ones built on software estimates with no individual component analysis — produced cheaply and quickly without anyone actually examining the building. A Cost Seg America study uses IRS Approaches 1 and 2, with every component individually documented and a published source citation supporting every value. Nothing aggressive — just accurate.
Cost Seg America has been through 125+ IRS audits over 24 years. Zero losses. Zero dollars ever returned on behalf of any client. If the IRS opens your file three years from today, we are there — at no additional charge.
When an IRS examiner opens a Cost Seg America file, they find every qualifying and non-qualifying component individually identified, measured, and valued with a published source citation — RSMeans cost data, manufacturer specifications, or other recognized valuation authorities — supporting every number. There is nothing to dispute because we documented everything.
Our audit defense has no hour caps, no time limits, and no additional fees. If the IRS opens your file three years from today, we are there. Our 24-year audit record is the direct result of how the work is done — every study is built to withstand examination from day one.
IRS Approach 5 is a software shortcut that estimates your building's components using industry averages instead of actually analyzing your property. Most firms charging under $2,900 use it. Many outsource the work overseas. The IRS flags these results as "subject to challenge." Ours never uses it.
The IRS Audit Technique Guide describes six approaches to performing cost segregation studies. IRS Approach 5 uses software modeling to estimate component values based on statistical databases and industry averages. The building's actual components are never directly analyzed — the software makes an inference about what your building probably contains based on what similar buildings typically have.
Most firms charging under $2,900 use IRS Approach 5. Many outsource the actual work to teams in India, South Africa, or the Middle East. Think about what that tells you about their priorities. If they cared about your bottom line the way they care about their own, they would use IRS Approaches 1 and 2 — the methodology that finds everything, documents everything, and holds up when the IRS comes knocking. Instead, they optimize for speed and margin, and you absorb the risk.
The IRS itself notes that IRS Approach 5 results are "subject to challenge over statistical validity." Good luck in an audit with a study built on software averages and offshore estimates. Cost Seg America uses IRS Approaches 1 and 2 exclusively — direct analysis of your property's actual components, documented to the component level. That is why our studies find $60,000 to $150,000 more per $1 million, and why 125+ audits have ended the same way: zero losses, zero dollars returned.
Yes — the IRS published a 347-page Audit Technique Guide describing exactly how studies should be performed and how their examiners evaluate them. Cost Seg America's methodology is built directly from that guide.
The IRS Cost Segregation Audit Technique Guide is a publicly available document describing every accepted methodology, the documentation standards IRS examiners use when reviewing a study, and the specific approaches the IRS considers thorough versus incomplete.
It is the standard by which every cost segregation study — including yours — will be evaluated if you are ever audited. A study that cannot be traced back to this guide, component by component, is a study with exposure. Cost Seg America's methodology aligns precisely with what the IRS describes as the most thorough approach.
Cost segregation identifies which parts of your building qualify for a shorter schedule. Bonus depreciation then lets you deduct those parts in full in Year 1. Together, they are what creates the large Year 1 tax savings you see in our case studies.
Cost segregation does the classification work. Bonus depreciation does the acceleration. Without cost segregation, you cannot identify which components qualify for shorter recovery periods. Without bonus depreciation, those components would still be deducted over their 5- year, 7-year or 15-year schedule rather than immediately.
Together: a $5 million building with $1.5 million in reclassified components produces a $1.5 million Year 1 deduction. Your CPA makes the bonus depreciation election. We produce the study that makes that election defensible.
Depreciation recapture is real — when you sell, the IRS recaptures some of what you deducted earlier. But the math almost always still favors taking the deductions now. And there are legal strategies to defer or eliminate recapture entirely.
When you sell, the IRS recaptures accelerated depreciation — up to 25% for real property components and at your ordinary income rate for personal property. This is real and should be part of your planning.
But the math consistently favors taking the deductions. Money saved today, invested and compounding, is worth more than recapture tax paid at sale years from now. Beyond that, four strategies can defer or eliminate recapture: a 1031 exchange, a Qualified Opportunity Zone investment, holding until death for a stepped-up basis, or structured installment sale treatment. Your CPA determines which applies. We provide the analysis that starts the conversation.
Yes — and it is one of the most powerful combinations in real estate tax planning. Done correctly, you defer recapture through the exchange and immediately begin accelerating depreciation on the replacement property.
When you complete a 1031 exchange on a property where you previously took cost segregation, the recaptured depreciation does not trigger ordinary income at the time of exchange — it is carried into your adjusted basis on the replacement property via IRS Form 8824. The tax is deferred, not eliminated.
After the exchange, start a new cost segregation study on the replacement property. Depreciation begins accelerating immediately on the new asset, and the cycle continues. Many of Cost Seg America's most experienced clients use this approach across multiple acquisition cycles.
Form 3115 lets you claim all the depreciation you should have been taking — but weren't — in one lump sum this year. No amended returns. No IRS permission required. Cost Seg America goes back up to 10 years on any purchase, new build, or renovation.
IRS Form 3115 — Change in Accounting Method — formalizes the change in how your property is depreciated. The 481(a) adjustment calculates the difference between the depreciation you actually took and what you were entitled to take, then claims that entire difference in the current tax year as a single lump-sum deduction.
No amended returns. No IRS permission. No retroactive filing. Cost Seg America will go back up to 10 years from the date of your purchase, new construction, or major renovation — whichever applies. If you bought a building in 2019, completed new construction in 2020, or renovated in 2021 and never had a study done, every year of missed deductions is still available to you. Your CPA files the 3115. We provide the study that makes it possible.
In a 1031 exchange, recaptured depreciation rolls forward into your new property's basis — no tax bill at the time of exchange. Then you start a new study on the replacement property and the acceleration begins again.
IRS Form 8824 governs how depreciation recapture is treated in a 1031 exchange. Section 1245 recapture — the ordinary income portion for personal property components — is carried into the basis of the replacement property rather than recognized at the time of sale. The exchange defers the tax. It does not eliminate it.
Each exchange defers recapture into the next property. Each new cost segregation study accelerates depreciation on the next acquisition. Investors who execute this cycle consistently across multiple properties often build substantial, perpetually deferred tax positions — legally, with full IRS documentation supporting every step.
Your free proposal includes a specific savings estimate for your property, a flat fee quote, an expected timeline, and a straight answer on whether the numbers make sense for your situation. No obligation. No pressure. No surprise fees.
When you request a proposal, we review your property details and prepare a written estimate that includes: expected Year 1 deductions based on your property type and purchase price, the flat fee for the study, the projected timeline, and a clear assessment of whether the economics justify moving forward.
If the numbers do not make sense for your property, we tell you that directly in the proposal — before you spend a dollar. We have turned away engagements because they did not pencil out for the client. That is not common in this industry. It is how we have stayed in business for 24 years.
You receive a firm, fixed price before you commit to anything. No percentage of savings. No contingency fees. No surprises. You know exactly what the study costs before we start.
Cost Seg America charges a flat fee based on the complexity and size of the property — not as a percentage of what we find. That matters: we are paid the same whether we find a great deal or a modest amount, which means our findings reflect what is actually there, not what would maximize our fee.
Your flat fee is quoted in your free proposal and does not change. There are no add-ons for audit defense, no hidden charges tied to the study findings. What we quote is what you pay.
Most studies are completed within 45 to 60 days of engagement. Larger or more complex properties may take longer. Rush delivery is available for year-end tax planning situations.
Timeline depends on the size and complexity of the property and the availability of purchase or construction documentation. A standard commercial property typically completes in 45 to 60 days from engagement. Very large or highly complex portfolios may require additional time. We communicate the expected timeline clearly in your proposal and keep you informed throughout the process.
If you are approaching a year-end deadline, call us directly at 1-888-365-5023. We will assess your situation honestly and tell you whether expedited delivery is achievable for your property.
No. CPAs who understand cost segregation strongly support it. We deliver a clean, fully documented report they can apply directly to your return. We work alongside your CPA, not around them.
Cost Seg America delivers a complete, CPA-ready fixed asset report with full methodology documentation, individual component schedules, and published source citations for every value. Everything your CPA needs to apply the depreciation schedule is in the report.
We do not replace your CPA — we make their job easier. If your CPA has questions about our methodology or documentation, we speak with them directly. That conversation happens often, and it consistently ends with the CPA fully comfortable with the work. Many of our best client relationships began with a CPA referral.
The ideal time is the year you purchase or place a property in service. But here is something most people do not know: our team can work on a study for last year's purchase all the way through July of the following year if you filed for a tax extension.
Timing determines how much of the benefit you capture in Year 1. The optimal moment is the tax year the property is acquired or a new construction project reaches completion — this allows 100% bonus depreciation to apply immediately to every qualifying component.
For properties already owned, IRS Form 3115 allows you to capture all prior-year missed depreciation in a single current-year filing — going back up to 10 years.
Here is the part most people miss: if you purchased, built, or renovated a property last year and filed for a tax extension, our team can still complete your study and deliver it in time for your extended filing deadline — typically as late as July or October of the following year, depending on your entity type. You do not need to wait until next year to act on last year's acquisition. Call us and we will tell you exactly where your window stands.
Yes — and new construction often produces the highest reclassification rates of any property type. When you build from the ground up, every component is documented from day one, which means nothing gets missed.
New construction cost segregation studies typically identify 18% to 28% of total construction cost as 5-year and 7-year personal property and 8% to 18% as 15-year land improvements — reclassification rates that frequently exceed those of acquired properties, where some documentation may be incomplete or unavailable.
The reason is documentation quality. A new construction engagement is supported by contractor invoices, architectural drawings, construction schedules, and material specifications — the most precise cost data available. Every component is identified and valued from actual construction records, not estimated from a purchase price.
The right time to start a Cost Seg America study on a new construction project is at or near the certificate of occupancy, when the property is placed in service and 100% bonus depreciation becomes applicable. Starting the study at this stage ensures the maximum deduction is captured in the first year of operation.
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Every question above has the same underlying answer: we do honest work and we stand behind it. If you have a situation that does not fit a standard FAQ, call us directly.