Frequently Asked Questions

Cost segregation studies are performed by specialized firms with engineering and tax expertise, not by typical CPAs. The IRS Audit Techniques Guide calls for engineering-based methodology, so a credible provider employs qualified engineers who inspect the property, classify assets, and produce audit-defensible documentation. Your CPA then uses the finished report to file the deductions. R.E. Cost Seg performs fully engineered studies for investors in all 50 states.

In real estate, a cost segregation study is an engineering-based analysis that separates a building into its individual components — flooring, cabinetry, electrical, plumbing, parking, landscaping — and assigns each to the shortest IRS-allowed depreciation life (5, 7, or 15 years) instead of the default 27.5 or 39 years. Real estate investors use it to accelerate depreciation deductions and reduce taxable income in the early years of ownership.

A cost segregation study starts at $500 for a software-based study, $950+ for a Rapid Report (residential), and $2,320+ for a fully engineered study (residential or commercial). Industry-wide, engineering-based studies typically run $3,000–$15,000+, depending on property type, value, and complexity. Most studies return 5–20x their cost in first-year tax savings.

Yes, DST-sponsored real estate commonly uses cost segregation at the property level, with benefits allocated to investors based on offering structure and individual circumstances. The exact investor impact depends on allocations and the investor's tax profile.

Truck repair facilities can be good candidates for cost segregation (often with meaningful 5-, 7-, and 15-year components). Placed-in-service timing matters for bonus depreciation, so confirming when the new building/assets were placed in service is key.

Bonus depreciation under Qualified Production Property works a bit differently than what most people expect from cost segregation. QPP doesn't reclassify the building into a shorter recovery period the way QIP does, it stays 39 year nonresidential real property. Instead, Section 168(n) grants 100% bonus depreciation directly to that 39 year property itself, as long as it's used as an integral part of a qualifying production activity like manufacturing, production, or refining, placed in service after July 4, 2025 and before January 1, 2031.

‍
Cost segregation still matters here because most production facilities are mixed use, with office space, admin areas, and parking that don't qualify, so you need a reasonable allocation between eligible and ineligible square footage, and the IRS has specifically named cost seg data as acceptable support for that allocation. One thing to flag: there's a 10 year recapture window if the property changes use within that period, so this isn't a "take the deduction and forget it" provision the way some other bonus depreciation property is.

Often, the preferred method to "catch up" missed depreciation (including from cost seg) is a look-back study with a Form 3115 accounting method change rather than amending prior returns. Whether an amendment is allowed/advisable depends on timing and facts, but many taxpayers use 3115 for missed depreciation.

Sometimes. Many STRs are reported on Schedule E, but if substantial services are provided to guests (more hotel-like operations), reporting can shift (often discussed as Schedule C vs Schedule E). The correct treatment is facts-dependent and should be confirmed with the tax preparer.