You will hold this report for as long as you own the building. Yet most owners choose a cost segregation company on price and turnaround, the two things that say least about whether the study holds up. Here are twelve questions that separate firms, each with the answer you want and the one that ends the call.
The short answer
- Ask who personally performs the engineering. "Our software handles it" is a complete answer, just not the one you want.
- Ask which IRS Audit Techniques Guide methodology they use. A firm that cannot name one is not working from the guide examiners use.
- Ask for a redacted sample report before you sign. Look for asset-level detail, unit costs, and a reconciliation to actual cost.
- Never accept pricing based on a percentage of your savings. It pays the preparer to be aggressive, not accurate.
- Get the audit support policy in writing, and confirm it is inside the fee.
Who Actually Performs the Engineering
Who performs the engineering, and what are their credentials? You want a named person with construction, engineering, or estimating experience working alongside someone with tax expertise. The IRS guide puts preparer expertise first among its 13 quality elements. Walk if the answer is a job title with no discipline behind it.
Do you perform a site inspection, and if not, what substitutes for it? "Yes" is the clean answer. "No, but we work from complete construction records, drawings, and dated photography" is acceptable on some properties. "We don't need to" is not an answer.
Have you done this property type, and what did those studies yield? You want a range and a reason tied to your asset class. Be skeptical of any percentage quoted before someone sees the building.
How They Handle Method, Land, and Reconciliation
Which of the ATG methodologies do you use? The Cost Segregation Audit Techniques Guide, Publication 5653, revised February 2025, describes six. You want the Detailed Engineering Approach from Actual Cost Records, or the Cost Estimate Approach where records do not exist. Rule-of-thumb approaches are what examiners challenge.
How do you determine the land allocation? Land is never depreciable and comes out first, so this number moves your entire result. Acceptable sources: the contract allocation, an appraisal, an assessor ratio, or a site-value analysis. "We use a standard 20%" is a guess wearing a suit.
Do you reconcile allocated cost back to actual cost? Almost nobody asks, and it most reliably identifies real engineering. Every dollar of basis should tie to your closing statement. A vague answer means the number was modeled, the distinction our comparison of engineering and software studies explores in full.
What Lands in Your CPA's Hands When the Study Is Done
Will I get an asset-level detail schedule my CPA can import? You want line items with descriptions, costs, recovery periods, and conventions, in a spreadsheet that loads into the fixed asset system. A PDF with four totals creates work you pay for hourly.
Do you prepare the §481(a) computation and Form 3115 workpapers? For a prior-year property, the catch-up runs through Form 3115 with a §481(a) adjustment (the mechanism for capturing depreciation you should have taken earlier). Some firms hand your CPA a schedule and wish them luck.
What does the report contain? Methodology, documentation, interviews, unit costs, photographs, the legal analysis behind each classification, an asset-by-asset listing of §1245 property, and the reconciliation. That is not a wish list; it tracks the IRS Audit Techniques Guide.
How They Price, and What Happens if You Are Examined
What is your audit support policy, is it in writing, and is it in the fee? Get all three, and ask what is covered: answering an information document request, defending methodology, producing workpapers. Many advertise support, then bill it hourly years later.
How do you price, and do you ever price on a percentage of savings? You want a flat fee quoted after a scoping conversation, based on property type, size, complexity, and whether a look-back is involved. Contingency pricing ends the conversation. Our breakdown of what a cost segregation study costs shows what drives a legitimate quote.
Can I see a redacted sample report, and who owns the workpapers? A confident firm sends one. Workpapers belong to you and your representatives, not withheld as proprietary. Refusal on either point is your answer.
Comparing Three Real Quotes
Example: a $2,600,000 medical office building Land allocated at $400,000, leaving $2,200,000 of depreciable basis. Three quotes arrive: software at $2,400, a regional engineering firm at $9,500, a national firm at $26,000.
| Software, $2,400 | Engineering, $9,500 | National, $26,000 | |
|---|---|---|---|
| Site inspection | No | Yes | Yes |
| Asset detail schedule | Category totals | Line item | Line item |
| Reclassified | 26% / $572,000 | 33% / $726,000 | 33% / $726,000 |
| Less 39-year depreciation forgone in year one | ($14,667) | ($18,615) | ($18,615) |
| Incremental first-year deduction | $557,333 | $707,385 | $707,385 |
| First-year cash at 35% | $195,067 | $247,585 | $247,585 |
| Net of fee | $192,667 | $238,085 | $221,585 |
Note the deduction line. The benefit is not 35% of the gross reclassified amount, because those dollars would have produced a year of 39-year depreciation anyway. Netting that out moves each column down by roughly $5,100 to $6,500. It is shown as a simplified full year; MACRS applies the mid-month convention to real property, so the actual figure depends on the placed-in-service month.
The middle quote still wins, and not because middle quotes always win. It wins because the engineering found $154,000 the model averaged away, and the extra $16,500 bought nothing this building needed. Your result depends on your tax rate and passive loss position.
Red Flags That Should End the Conversation
Contingency pricing based on a percentage of savings. A savings percentage quoted before anyone has seen the property. No site visit and no explanation of what replaces one. No asset-level detail. No reconciliation to actual cost. No construction background on the team.
And pressure to sign before year-end. A study can be performed on property placed in service in any prior year, with no cutoff, so that deadline is usually manufactured. Each flag maps to a way studies fail under examination, covered in cost segregation audit risk and defense.
The Honest Part: Interrogate the Cheapest and the Most Expensive
The cheapest quote is cheap for a structural reason. Nobody visits a site, measures, and writes legal analysis for $1,200. That may still be right on a small property where a full study cannot pay for itself, but buy it knowing what it is. The most expensive quote deserves the same scrutiny in reverse: national firms often do excellent work, and sometimes the premium buys brand rather than engineering. Compare answers, not letterhead.
There is also a case for no study at all. Below roughly $500,000 of depreciable basis, or in a year when the passive loss rules leave the deduction suspended, the honest answer is to wait. A company that never reaches that conclusion is selling, not evaluating. Our list of what you need ready for a study shortens every quoting call.
Frequently Asked Questions
Does my CPA firm need to be the one doing the study?
Usually not, and most CPA firms have no engineering staff. A specialist firm does the engineering and delivers the asset schedule, §481(a) computation, and Form 3115 workpapers, while your CPA files the return.
Is a certification required to perform cost segregation studies?
No license is required, which is exactly why the questions above matter. The IRS guide describes what a quality study contains and expects construction and tax expertise, but it credentials no one.
How long should a study take?
Two to six weeks is typical for a commercial property, longer for complex assets. A 48-hour turnaround means no one visited and no takeoff was performed.
See What Your Property Would Yield
Every building is different, and the only way to know your number is to look at your building. Precision Cost Segregation provides a no-cost feasibility analysis: send us the property address, purchase price, closing date, and any improvements, and we'll model your likely reclassification and first-year benefit before you commit to anything.
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This article is provided by Precision Cost Segregation for general educational purposes and does not constitute tax, legal, or accounting advice. Tax outcomes depend on your specific facts, your tax rate, your passive activity position, and your entity structure. Figures shown are illustrative. Consult your CPA or tax advisor before acting, and engage a qualified professional to perform any cost segregation study. Information is current as of publication.
This article is general information, not tax or legal advice. Depreciation outcomes depend on your facts, elections, and current law — consult your CPA before acting. © 2026 Precision Cost Segregation.