🇺🇸 Made in America·100% U.S.-Based Team · 24+ Years in Cost Segregation
When you refer a client to a cost segregation provider, your name goes on the return that claims the deduction. The questions worth asking before that referral are about methodology, documentation, defensibility, and who stands behind the study if it is examined. A provider who answers all twelve of these plainly is one you can refer to. A provider who deflects on methodology, cannot describe their audit support in writing, or quotes a deduction before analyzing the property is one who will eventually create work for you.
A CPA in Lawrence, Kansas received a cost segregation report from a client in March, three weeks before the filing deadline. The client had found the provider online, paid a low fee, and was thrilled with the reclassification percentage on the summary page.
The CPA read the report. It was fourteen pages. It contained a summary table, a percentage, and almost no support. There was no description of the methodology used. There was no component-level detail tying reclassified amounts to actual building components. There was no engineering documentation. There was a disclaimer stating the report was an estimate for planning purposes.
The client wanted to claim a large deduction based on it. The CPA had to decide whether to sign a return relying on a document that could not support itself. That is a bad position to be in three weeks before a deadline, and it is entirely avoidable with a conversation before the study is ordered instead of after.
These are the twelve questions that conversation should cover.
The IRS Cost Segregation Audit Technique Guide, currently Publication 5653, dated February 2025, describes several approaches to performing a study and is explicit that they are not equally rigorous. A provider should be able to tell you exactly which approach they use and why.
The answer you want is a detailed engineering-based methodology grounded in actual cost data or detailed estimation, not a residual or rule-of-thumb allocation. If a provider cannot name their methodology or describes it vaguely as proprietary, that is your answer. The Cost Seg America team uses IRS Approaches 1 and 2 exclusively, which are the methodologies the ATG treats as most reliable.
The ATG discusses the qualifications of the preparer as a factor in a study's reliability. Cost segregation is fundamentally an engineering exercise applied to tax classification. A study performed by someone with no engineering capability, running a software model over a purchase price, is a different product from an engineered analysis of a specific building's components.
Ask directly whether qualified engineering expertise is applied to the property, and what that involvement consists of.
Land is not depreciable, so the land allocation determines how much basis is even eligible for reclassification. It is also one of the fastest ways to render a study indefensible, because an artificially low land number invites disallowance of the whole position.
A good provider will describe using an appraisal, the county assessment ratio, a contract allocation, or a comparable land analysis, and will explain which they used and why. A provider who treats land as a dial to minimize is telling you how the rest of the study was built.
This is the question that would have saved the CPA in Lawrence. Ask what the deliverable actually contains: component-level detail, the basis for each classification, the source data used, the engineering support, and the methodology narrative.
A study you might have to defend needs to be able to explain itself without the preparer in the room. A summary page and a percentage cannot do that.
Ask the provider how they handle components where the classification is arguable. The answer tells you a great deal.
A provider who says they classify aggressively to maximize the client's deduction is describing a risk they are transferring to your client and to you. A provider who describes applying the factors the courts have established and the ATG framework, and who mentions declining to reclassify items that do not support it, is describing a study that holds up. The deduction your client keeps matters more than the deduction on the summary page.
Get specifics, in writing. Who responds? Is there a fee? Is there an hour cap? Is there a time limit? Does the support cover the full examination and any appeal, or does it stop at producing the original report?
Many providers offer something they call audit support that turns out to be a phone call and an invoice. The Cost Seg America team provides audit defense with no time limit, no hour cap, and no additional fee, and has defended studies through more than 125 IRS audits with zero losses and zero dollars ever returned to the IRS. Whatever the provider's answer is, get it in writing before your client signs.
A provider who says every property benefits is selling rather than advising. There are real situations where a study does not pay: a very small property where the fee is large relative to basis, a short intended hold where recapture consumes the benefit, an owner with no income to shelter and no near-term prospect of any, or a property with little remaining basis.
Ask whether they have ever told a prospect no. A provider who has cannot be sold on volume alone, which is exactly the provider you want touching your clients.
The deduction is only worth something if the client can use it. Passive activity limitations, material participation, real estate professional status, self-rental characterization, and at-risk rules all determine whether a large first-year loss lands or sits suspended.
A provider does not need to give tax advice on your client's return. That is your job. But a provider who never raises the question is going to hand your client a large deduction and let you deliver the news that it is suspended. A provider who flags it up front lets you plan the structure around the study, which is the whole point of doing this before rather than after.
Ask whether the fee is flat and quoted up front, or a percentage of the projected savings. A percentage-of-savings arrangement creates an obvious incentive to inflate the reclassification, which is precisely the direction you do not want a provider's incentives pointing when you are the one signing the return.
Ask whether the fee is quoted before the client commits, and whether the estimated benefit is provided at the same time so the client can evaluate the return themselves.
For a property placed in service in a prior year, the mechanism is a change in accounting method producing a catch-up adjustment on the current-year return rather than amended returns. Ask how the provider handles it and what they deliver to support the Form 3115.
Also ask directly who they expect to file it. The referring CPA filing the Form 3115 is standard, ordinary CPA work. A provider who assumes their own affiliated CPA will take that piece is quietly inserting themselves into your client relationship. That should be a backup option for situations where you cannot or prefer not to file it, not the default path.
Cost segregation sits on top of rules that have moved considerably. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100 percent bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. IRS Notice 2026-11 addressed how the post-OBBBA bonus rules apply, including the written binding contract rule that can make an acquisition date the signing date rather than the closing date.
Ask the provider to explain the current bonus rules and the relevant dates. A provider who gets the OBBBA signing date wrong, or who cannot explain the acquisition date interaction, is not tracking the law your client's deduction depends on. This is a fast and revealing test.
Ask whether the study is performed in-house or brokered to a third party, and who is accountable if there is a problem. Some firms sell studies and subcontract the analysis, which can be fine, but you should know who did the work and who stands behind it.
Taken together, the provider you want gives you plain answers: a named methodology consistent with the ATG, engineering expertise applied to the actual property, a defensible land allocation, a documented report that explains itself, a conservative posture on arguable classifications, written audit defense terms, a willingness to decline unsuitable properties, early flagging of usability issues, a flat fee quoted before commitment, a lookback process that leaves the Form 3115 with you, current command of OBBBA and Notice 2026-11, and clarity about who performs the work.
That provider produces studies you can sign returns against without reading them twice.
There is a version of this relationship that is genuinely good for a CPA practice, and a version that quietly costs you.
The good version: a client with a qualifying property gets a substantial, well-documented deduction, you file a clean return, the client attributes the outcome partly to your advice, and the study file sits in your workpapers ready to support itself if anyone asks. Cost segregation done properly is one of the more reliable ways to deliver a visible, large result to a real estate client.
The bad version: a thin report arrives in March, you spend unbillable hours deciding whether you can rely on it, you either sign something you are uneasy about or tell the client the deduction they already paid for is not supportable, and if it is examined you are the one in the room.
The difference between those two versions is almost entirely determined before the study is ordered, by the twelve questions above.
The Cost Seg America team works with CPAs and their clients on exactly this basis. Engineered studies using IRS Approaches 1 and 2. Flat fee quoted before commitment. Documented, component-level reports. Audit defense with no time limit, no hour cap, and no additional fee. More than 16,000 studies completed, more than 125 IRS audits defended, zero losses, zero dollars ever returned to the IRS, and an average first-year savings of $438,511 across those studies.
The Form 3115 on a lookback study stays with you, the referring CPA, as standard CPA work. Engineered, not estimated. Made in America, by Americans.
If you have a client with a property over $250,000 in basis and you want to see what an engineered study would produce before anyone commits to anything, request a free proposal or reach out directly:
1-888-365-5023
info@costsegamerica.com
What methodology should a cost segregation provider use?
A detailed engineering-based approach consistent with the IRS Cost Segregation Audit Technique Guide, Publication 5653 dated February 2025, rather than a residual or rule-of-thumb allocation. The provider should be able to name their methodology plainly.
What should a cost segregation report contain?
Component-level detail, the basis for each classification, the source data relied on, engineering support, and a methodology narrative. A summary page with a percentage cannot support itself under examination.
Who files Form 3115 on a lookback study?
Ordinarily the referring CPA, as standard CPA work. A provider's affiliated CPA should be a backup for situations where the referring CPA cannot or prefers not to file it, not the default arrangement.
What audit support should I expect?
Get the terms in writing before your client engages: who responds, whether there is a fee, whether there is an hour or time cap, and whether the support extends through the full examination.
How should the fee be structured?
A flat fee quoted before the client commits avoids the incentive problem created by percentage-of-savings arrangements, where the provider's compensation rises with a more aggressive reclassification.
When does cost segregation not make sense?
Very small properties where the fee is large relative to basis, short intended holds where recapture consumes the benefit, owners with no income to shelter, and properties with little remaining basis. A provider who never says no is worth questioning.
What current law should the provider know cold?
The One Big Beautiful Bill Act, signed July 4, 2025, restoring permanent 100 percent bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, and IRS Notice 2026-11 addressing how those rules apply, including the written binding contract rule affecting acquisition dates.
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