FAQs CostSegregation.com
most commonly asked questions
The software model is designed to fit select properties in the sub $1.5M range. CostSegregation.com produces a detailed cost segregation study using component-level quantity takeoffs and standardized construction cost estimates, with quantity estimates dynamically adjusted based on user-provided property inputs. An engineer-based study is done by someone on our team and consists of a more precise analysis of components within the property based on client supplied photographs.
The software outputs a written report with methodology, procedure and tax consideration narratives as well as detailed schedules. That is typically the first “line of defense” for anyone scrutinizing the analysis. Beyond that if there is an audit – we will support the client through field level audit support. We will respond to written questions about the segregation report, typically provided in an Information Document Request (IDR) form. We can join conference calls with the audit manager or agents to support the taxpayer and CPA when explaining the cost seg report results. Audit defense is included in the cost paid for the study.
That calculation is a feature of our system. We utilize AI to pull in the assessors’ valuations and apply that allocation to your purchase price, and we suggest using this if there is no better information available, such as an appraisal. There may be situations where property tax assessor information is not available, in which case you will need to consider other options. Our software allows you to use whatever value you decide is appropriate. Here is a link to explaining land valuation options in cost segregation:
How to Allocate Land vs. Building Values for Investment Property
Yes! Costsegregation.com produces an engineering-based cost segregation study using component-level quantity takeoffs and standardized construction cost estimates, with quantities dynamically adjusted based on user-provided property inputs.
The most cost-effective way is to add their depreciable basis and the cost of the renovations together and let the system estimates handle it. This won’t be the most precise, but it is cost effective. And this will only work for improvements completed in the same tax year.
Suggested Steps:
- Input the acquisition amount
- Complete dropdown menus
- When the basis confirmation screen comes up, make note of the land value the system is providing
- Override the purchase price to reflect the purchase price plus improvements
- Override the land value with the number the system previously provided
- Run report
No, there are no inputs for square footages of concrete/landscape/linear footage of cabinets. These are built on ratios and estimates. If they want something more detailed/precise, a full engineering-based study is more appropriate.
Our software is designed to be a self-service solution, therefore we created an easy-to-follow tutorial guide you can access below:
https://www.costsegregation.com/tutorial-video-step-by-step-platform/
CostSegregation.Com loyalty program
The CostSegregation.com loyalty program gives you the opportunity to save more on additional volume of properties at your own pace!
- Once you’ve spent $2,500, you’ll reach Silver status: a 10% discount on all subsequent costsegregation.com studies from that date through the end of the next calendar year.
- Once you hit $7,500 in spend, you’ll reach Gold status: a 15% discount on all subsequent costsegregation.com studies from that date through the end of the next calendar year.
- At $15,000 in spend, you’ll reach our Platinum status: a 20% discount on all subsequent costsegregation.com studies from that date through the end of the next calendar year.
For example, if you reach $2,500 in spend on October 31, 2026 – you’ll join our Silver loyalty tier through December 31, 2027.
property eligibility candidates
The software is designed for acquired properties with a depreciable tax basis under $1.5M (not including land). That means if you purchase a property for $1.8M and the land is worth $400k, you can still use the software because the depreciable tax basis is $1.4M! For properties over $1.5M, click here to request a quote from KBKG, the top Cost Segregation provider in the US.
If the IRS were to audit, they typically would first look to an appraisal to see if land was valued. If nothing exists, then they would look towards the county property tax assessor’s allocation as they did in Nielsen v. Commissioner.
CostSegregation.com is not built to handle this situation because there are too many possibilities related to the scope of the subsequent improvements. However, CostSegregation.com can still be used to provide a reasonable estimate of each asset’s tax breakdown (provided that the total aggregate depreciable tax basis for improvements is less than $600,000). We recommend only entering the tax basis for the original acquisition. When the report is complete, the allocation %’s of each tax category (5 year, 15 year, 27.5 year) from the analysis could be applied to the subsequent improvements costs.
For example, consider a building represented by two assets on the original depreciation schedule with asset #1 for $400,000 and asset #2 for $100,000. Using the $400,000 basis in the Residential Cost Segregator™ software, let’s say the cost segregation report identifies 5 year property of $60,000 (15% allocation of the total). For asset #2 ($100,000), you would apply the same 15% to get 5-year property of $15,000.
After you import the CostSegregation.com results into KBKG’s 481(a) Adjustment Software, you can simply add a second original asset with a different placed in service date to represent the subsequent improvements. In the example above, you would create a second original asset (for the subsequent improvements of $100,000) with a sub-asset for 5-year property totaling $15,000 (15% allocation) and a sub-asset for real property of $85,000.
Additionally – anytime better information exists, such as construction invoices, the classification of subsequent improvements should be based on what was actually done to the building. For example, if you spend $5,000 on new carpet it can all be classified as 5-year property. If you remodel the restroom, it should all be classified as 27.5-year property.
Once an accounting method is established (after filing two tax returns), you are required to file a 3115 to modify depreciation. If the property was acquired last year, you can amend last year’s return to claim missed deductions.
No. You are not allowed to depreciate residential property that is not used for business or income.
If there is “intent” to renovate any part of the structure, the value of those components may need to be further discounted. For these situations, it is recommended to add the basis of any and all subsequent improvements to the total basis used in CostSegregation.com. The Cost Segregation report allocations can then be used on each asset on the depreciation schedule.
Maybe. Depending on the state, the definition of personal property may be vastly different. Consult your tax advisor or a local property tax expert.
It depends. Property held outside the US is subject to different depreciation rules that CostSegregation.com does not currently support.
No. Cost Seg reduces taxes so if no tax is being paid, cost seg does not help.
No, that level of refinement is not available through a costsegregation.com analysis.
You are correct, 100% bonus depreciation is permanent…for assets ACQUIRED and PLACED INTO SERVICE ON OR AFTER JANUARY 20, 2025. If you acquired a property before January 20, 2025 but finished renovations or conversion after January 20, 2025, you are stuck in with the bonus depreciation rules related to the TCJA, which means 40% bonus in 2025, 20% bonus in 2026 and 0% bonus in 2027 and beyond.
tax benefits FAQ
Depreciation deductions from a cost segregation study reduce Alternative Minimum Tax (AMT).
Generally, the personal property from a cost segregation report is eligible for the 179 expense. However, it may not be eligible for 179 expensing for residential properties owned by passive taxpayers. Please consult your tax preparer to confirm your ability to take advantage of IRC Sec 179 expensing.
Yes, but recapture rules will apply. Therefore it almost never makes sense to do this.
Yes, there are three tax rates that may apply. Personal property from a cost segregation study is recaptured at ordinary rates (up to 38%), 1250 property is recaptured at 25%, Capital Gains Rate is 15-20%.
A company can always increase their NOL’s through the implementation of a CS study. Those NOL’s carry forward. “Real Estate Professionals” can also carry NOLs backward.
software report generation FAQ
If you selected that the property is a “short-term or vacation rental“, then the report will be run as 39 years instead of 27.5 years.
Log in to your account and start from your dashboard. Hover over the ‘Apps’ column and when the menu drops down click “costsegregation.com”. Once you are in the software, Click ‘New Report’.
Once you receive a promo code, please enter it in your dashboard under “Promotions”
No, the credits that are purchased never expire and you can use them anytime.
Flooring is the #1 culprit of “lower” benefits. If flooring is showing up in 27.5/39-year property then the property has a flooring type that is not removable (e.g. hard wood, ceramic, hard tile). If the property has flooring that is more removable (carpet, laminate, VCT) it usually helps the benefit.
No, with our software there is no site visit.
Yes! You will be allowed to make up to 5 modifications to the report AFTER checkout (unlimited before).
The IRC Sec 481(a) calculation is included within the scope of the analysis if it was an asset placed into service in a prior year.
form 3115 accounting method change FAQ
Technically, a taxpayer can go back to 1987. However, the benefits may not make sense any longer with the age of the building/improvements. Generally, anything acquired less than 15 years ago is a good candidate.
Once an accounting method is established after filing two tax returns, you are required to file a 3115 to modify depreciation. If the property was acquired last year, you can amend last year’s return to claim missed deductions.
Once the extended due date has passed (9/15 or 10/15), you cannot file a 3115 for that tax year.
Filing two tax returns with the asset placed into service would mean you have established the method of accounting for that particular asset.
You can generally file an amended/superseded return to file a Form 3115 within 6 months of the original due date (that generally means it must be done before 9/15 or 10/15). There are other factors that come into play if the taxpayer is under examination. If that is the case, please consult your tax preparer before completing a study.
It is a one-time “catch-up” adjustment made when you change how something is accounted for, such as depreciation. It ensures income or deductions aren’t counted twice or missed by correcting the difference between the old method and the correct method.
You generally cannot change the same accounting method again for five years after you last changed it. Luckily, fixed assets (buildings) are changed using an individual method, which means you can correct depreciation without changing how the rest of the business accounts for income and expenses. It also means you can file accounting method changes more frequently, so long as they aren’t the same ASSET.
1031 exchanges FAQ
Generally, yes but you generally need to step up significantly to make that work. Please read the following article The Interaction Between Cost Segregation and Like-Kind Exchanges
Cost Segregation separates the property in buckets, 1245 and 1250. The trade into property must be equal or greater in value for the assets in each bucket.
No, the categories must always remain equal or increase. If there is not an equal basis or a step up in basis, it will trigger recapture tax or “boot”. Trading up is the general rule of thumb.
Real Estate Investor FAQ
property classification technical
One that is invested in real estate, but that it is not that person’s full-time business or source of income. Passive investors are usually limited in how they can deduct losses unless they qualify for exceptions like the $25,000 rental real estate allowance.
No, he cannot use passive losses to offset non-passive income. However, if he has other real estate properties, those would be considered passive and he could use losses from one property to offset income from another.
You need to materially participate in managing or operating the properties, rather than being a hands-off investor. The IRS looks at factors such as time spent, decision-making authority, and regular involvement in activities like leasing, management, and repairs to determine material participation.
To qualify as a real estate professional, one must spend more than 750 hours per year working in real property trades or businesses. In addition, more than half of all working time spent across all jobs must be in real estate and material participation in rental activities must occur.
The key benefit of using cost segregation in the estate plan is after death the heirs get a “step up” to fair market value of the property and get to depreciate the same personal property over again. However, there is another opportunity that many CPAs overlook. This video explains how to create permanent tax deductions from a cost segregation study when someone dies.
Decorative light fixtures, finished millwork/cabinetry, kitchen plumbing, and appliance hookups, carpeting, vinyl flooring, tele/data cabling.
There is not one determining criteria that is used. Over the years, the courts have used several tests including: Is it necessary for the business? Is the property designed or constructed to remain permanently in place? Is the component necessary to operate the buildings? Additionally, is the property capable of being removed? Is it readily removable? How much damage will the property sustain upon its removal? Movability itself is not the controlling factor in deciding whether the property lacks permanence.
Outlined within IRC Sec 168, the Unit of Property 9 building systems: HVAC, Plumbing, Electrical, All escalators, All elevators, Fire protection and alarm systems, Security systems, Gas distribution systems, and other structural components.
The definition of Real Property the county uses to determine property tax might not be the same as the IRS definition of 1250 Real Property, thus they may not be related or comparable. Please consult your tax advisor for further information.
Apartment cabinetry, plumbing, finish carpentry, stove hoods and electrical panels were ruled as not 1245 property, but the case is controversial due to Amerisouth selling the property and not following through on the lawsuit defense. Most cost segregation experts and even IRS officials believe this is base case law.
