What Does a Cost Segregation Study Hand a CPA?

What arrives in the deliverable

A completed cost segregation study is a 70-page engineered report, built to the same standard on both of our tiers, the full engineered study and the budget engineered study. It contains the component-level classification of the property, every asset assigned to its 5-, 7-, 15-, or 39/27.5-year class, the engineering methodology behind those assignments, and the resulting depreciation schedule the classifications produce.

On a look-back study, meaning a study performed on a property the client has already owned for years, the report also includes the section 481(a) computation: the catch-up adjustment representing the difference between depreciation actually taken under the old, unsegregated schedule and depreciation that should have been taken under the corrected classification. That computation is what gets attached to Form 3115 when the client's return is filed under the automatic consent procedure, no amended returns required. The catch-up figure is presented alongside a full reconciliation to the property's prior depreciation, so a CPA can trace exactly how the adjustment was built before it goes anywhere near a filed return.

Where the engineering ends and the return begins

The boundary here is deliberate and does not move. Our engineering team classifies the property and produces the depreciation numbers and the 481(a) computation. The CPA prepares and files the return, including Form 3115, makes the accounting method change determination, and takes ultimate responsibility for the return's positions. We never file returns, on any engagement, for any client.

That boundary is not a courtesy, it is the correct division of labor. A cost segregation study is an engineering exercise, applying construction cost estimation and asset classification principles to a specific building. A tax return is a legal filing built on a CPA's judgment across a client's entire financial picture. Keeping those separate is what makes the study usable by any CPA, not just one already familiar with our process.

This also means a study arrives as a complete, standalone engineering deliverable rather than a half-finished worksheet a CPA has to reconcile themselves. The classifications, the depreciation schedule, and the 481(a) computation are all internally consistent and cross-referenced to the same underlying asset detail, so a CPA reviewing the report is checking finished work, not assembling it.

How the technical review actually works

Our team fields methodology and classification questions directly from the preparing CPA, not through an intermediary and not on a delay. That includes questions on why a specific component was classified 5-year versus 39-year, how the quantity survey approach was applied to a given line item, how the 481(a) computation was assembled from the property's depreciation history, and how the report's positions map to the IRS's own Audit Techniques Guide.

This matters because a CPA reviewing an unfamiliar study has to be able to defend it, or push back on it, on its own technical merits before ever putting it in front of a client's return. A report that cannot answer a direct classification question is a report a careful CPA should not sign off on. Ours is built to answer that question, and the team that built the report is the team fielding it, not a separate customer service layer reading from a script.

The engineering standard behind the numbers

Component depreciation through a proper study has been settled law since the IRS lost Hospital Corporation of America v. Commissioner (109 T.C. 21, 1997). The IRS's own Audit Techniques Guide (Pub 5653) describes how a defensible study should be built, and a study following that guide is applying the IRS's own playbook, not exploiting a gray area. Full audit defense of the report itself is provided by the team that produced it, meaning an examiner questioning the study's methodology talks directly to the engineers behind it. That is defense of the report's technical positions, not representation of the taxpayer; the client's own CPA continues to represent the client throughout any examination.

On the numbers side, real delivered studies illustrate the range a CPA should expect to see: a $1,911,675 office/warehouse building basis produced $330,674 in first-year increased deductions, a $2,971,345 mid-rise office produced $479,220, and a $2,804,440 free-standing restaurant produced $599,678. First-year deductions on commercial property typically run 16 to 21% of building basis under current bonus rules, and a study typically shifts 15 to 35% of a building's basis into faster schedules, varying meaningfully by property type. Restaurants and finish-heavy properties run at the high end; simple shells run at the low end. See the full worked examples for the underlying basis, deduction, fee, and ratio on each.

Referral etiquette, and what a CPA can expect from the relationship

Every referral runs the same direction: a question about whether a specific study result fits a client's return, whether a personal-use count crosses a threshold, whether a material participation test is met, goes back to the CPA. We do not offer opinions on those questions to the client, and we do not put a CPA in the position of defending someone else's tax advice.

The mechanics we describe publicly are stated as tests and thresholds, never as outcomes for a specific taxpayer, and that same discipline carries into how our team talks to a referring CPA's client directly. A CPA bringing us a client keeps full control of the return and the client relationship throughout; our role stops at the engineering, the classifications, the 481(a) computation, and the technical defense of that work. See how bonus depreciation applies to an older acquisition and the glossary of terms a study's classifications reference, both useful references to have on hand when reviewing a report for the first time.

Frequently asked questions

Does the study include the section 481(a) computation, or does the CPA have to calculate it separately?

The 481(a) computation is part of the deliverable on a look-back study. Our engineering team assembles the catch-up adjustment from the property's depreciation history and the corrected classification, ready to attach to Form 3115 when the CPA files the return.

Who is responsible if the classifications in the study get questioned on exam?

Our team provides full audit defense of the report itself, meaning the engineers who built the study respond directly to an examiner's technical questions about methodology and classification. That is defense of the report, not representation of the taxpayer; the client's CPA continues to represent the client throughout the exam.

Can I ask technical questions about a study before recommending it to a client?

Yes. Our team takes classification and methodology questions directly from a CPA, whether the study is already underway or still being considered. A CPA does not need to take the report's positions on faith before deciding whether to bring it to a client.

Does Basis ever file a client's tax return or Form 3115?

No. We never file returns, on any engagement. The CPA prepares and files the return, including Form 3115 for a look-back study, using the classifications and computation our engineering team delivers.

What is the difference between the full engineered study and the budget engineered study for a CPA reviewing the report?

Both are complete, 70-page engineered reports built to the same IRS-aligned standard and both include full classification detail. The budget tier is priced for smaller or simpler properties; the full tier is sized for larger, more complex commercial buildings. Neither tier changes the technical rigor behind the classifications.