COST SEGREGATION
BUYER BEWARE
Commensurate with the One Big Beautiful Bill Act (OBBBA), cost segregation has jumped to the forefront of everyone’s attention. Why? Well, it’s the Uber-significant tax savings from 100% bonus depreciation, which is basically expensing all personal property items with a depreciable life of 15 years or less.
Like the gold rush, cost seg “experts” are popping up all over. Buyer beware has never been so obvious. The taxpayer should rely on his professional advisors for recommendations, not nearly select the low cost, unqualified, late entrant to this profession.
So, what are the criteria for selecting a cost segregation firm? We offer a few critical qualifiers:
- Choose a cost segregation firm that produces an engineering-based cost segregation study with defensible documentation, not a shortcut “template” report.
- The final deliverable should include a full cost segregation report with asset-by-asset classifications, and reconciliation to specific total project costs.
- A strong cost segregation study cites IRS guidance and tax law for each major classification (5, 7, 15-year and 27.5 or 39-year, where relevant).
- Your CPA should receive clear schedules and workpapers they can use to file supporting documentation.
- Only licensed engineers/architects/construction personnel should be utilized for cost seg.
- Avoid real estate agents posing as cost seg professionals.
- Ensure that the firm has successfully defended their analyses upon IRS audit or in Tax Court.