At a glance
What to know before choosing
- Cost segregation analyzes a property's costs to identify components with different tax classifications and depreciation recovery periods. The allocation needs support for both the classification and the amount assigned to each component.
What does a study examine?
A study reviews the property, construction or acquisition records, and the function of individual components. Its purpose is to support the classification and cost basis used for depreciation, rather than simply applying an unsupported percentage to the purchase price.
What documentation matters?
The IRS audit technique guide discusses the methodology, supporting documentation, legal analysis, asset groupings, and reconciliation of allocated costs to actual total costs. A practitioner should understand the assumptions and evidence behind the report.
Check the applicable law and tax year
Review the placed-in-service date, depreciation rules, and any accounting-method implications before implementing a study. The IRS guide explains examination considerations; it is not an official pronouncement of law and is current through its revision date.
Frequently asked questions
Questions about this guide
Does every building component receive a shorter recovery period?
No. Classification depends on the component and applicable rules. A study must substantiate its allocations and treatment.
What supports a cost allocation?
The study methodology, property records, component analysis, and reconciliation of allocated costs support the report.
Is the IRS audit guide itself tax law?
No. The guide explains examination considerations and is current through its revision date.
Current information