A cost segregation study analyzes building costs and classifies qualifying components into the appropriate tax depreciation categories. The purpose is timing: some components may have shorter recovery periods than the building itself.
What the analysis looks at
A study examines project costs, drawings, invoices, site work, building systems, finishes, and specialized property. The facts and documentation determine classification. A general percentage is not a substitute for analysis of the specific property.
The IRS publishes an Audit Techniques Guide for examiners evaluating cost segregation studies. The guide is also useful to taxpayers and practitioners preparing and reviewing study documentation, but it is not itself an official pronouncement of law.
Documents that make the process stronger
A complete cost package reduces assumptions and helps the study team connect each conclusion to the underlying property.
- Closing statement and purchase price allocation
- Construction contracts, change orders, and invoices
- Architectural, electrical, and mechanical drawings
- Fixed asset and depreciation schedules
- Dates placed in service and renovation history
Official sources
Use the linked agency material for the complete rule, eligibility criteria, forms, and later updates.
IRS: Audit Techniques Guides: Cost Segregation↗IRS Publication 946: How To Depreciate Property↗This article is general educational information and is not individualized tax, accounting, legal, or investment advice. Rules and agency guidance can change after the publication date.