Do Cost Segregation Companies Charge a Percentage of Your Savings?

The three ways cost segregation gets priced

Across the industry, fee models generally fall into three buckets. Flat, custom-quoted fees, priced per property based on square footage, property type, and engineering scope. Percentage-of-benefit fees, where the firm takes a cut of the projected first-year deduction or tax savings. And, at the low end, self-serve or software tools priced as a small flat rate regardless of the property, since there is no site-specific engineering behind the number.

Basis uses the first model. Every study is custom-priced per property. There is no flat rate card and no percentage of the deduction. Recent commercial studies have been quoted in the $9,000 to $12,000 range, and a recent single-family rental study was $1,295, illustrative examples only, not a menu.

Why percentage-of-benefit pricing creates a conflict

A cost segregation study's value comes from an accurate classification of a building's components into 5-, 7-, 15-, and 39-year (or 27.5-year residential) buckets. Accuracy is the product. When a firm's fee is a percentage of the deduction it reports, the firm makes more money by reporting a bigger deduction, regardless of whether that larger number reflects the building's actual components.

That does not mean every percentage-priced firm inflates numbers. It means the incentive structure points the wrong direction, and it is the kind of thing an examiner is trained to weigh when evaluating a study's credibility, independent of whether the study is actually accurate. An owner comparing two quotes on the same building has no easy way to separate an honest percentage-priced number from an inflated one without independently reviewing the underlying component documentation.

What the Audit Techniques Guide says about aggressive percentages

The IRS's Audit Techniques Guide (Pub 5653) does not prohibit any particular fee structure. What it does flag, as a quality signal an examiner watches for, is aggressive reclassification percentages unsupported by documentation, regardless of who priced the study or how. A study that moves an unusually high share of basis into 5-year property, without a clear component-by-component basis for why, invites scrutiny whether the firm charged a flat fee or a percentage. See the full walkthrough at what the IRS Audit Techniques Guide looks for.

A study typically shifts about 15 to 35% of building basis into faster schedules, varying by property type, restaurants running at the high end, simple shells at the low end. A number well outside that range, without documentation explaining why, is the actual red flag, not the fee model by itself. More on spotting these from the buyer's side at cost segregation red flags to watch for.

How custom, flat pricing lines up incentives

When the fee is set by the building's size and engineering complexity, not by the size of the deduction, the firm's revenue does not move based on how aggressively it classifies components. That removes the direct financial incentive to push the reclassification percentage higher than the property supports. It also means the fee is knowable before the study starts, once the building's basics are known, rather than a number that depends on how the final report turns out.

This is one reason a custom quote is paired with a floor rather than a promise: Basis guarantees a study identifies at least 20 times its fee in first-year deductions on commercial property, or 30 times on a short-term rental, or the study is free. The floor protects the client's downside without tying the firm's fee to the deduction size, and it does so without requiring the firm to know, ahead of time, exactly how large that deduction will turn out to be.

What a real quote looks like under each model

Put concrete numbers next to each other and the difference is easier to see. A real quoted Medical Clinic study, $1,404,500 building basis, produced $241,839 in first-year deductions for a $10,000 fee, a 24.2:1 ratio. Under a flat, custom-quoted model, that $10,000 fee was set before the study began, based on the building's size and complexity, and it does not move regardless of whether the final deduction lands at $241,839 or somewhat higher or lower once the engineering work is complete.

Under a percentage-of-benefit model, the same study's fee would instead be calculated after the fact, as a cut of whatever number the report lands on. If that percentage were, say, 10% of the deduction, the fee would have been roughly $24,000 rather than $10,000, and the firm's incentive during the engineering work itself would have been to find as much reclassifiable basis as possible, not simply the basis the building actually supports. That is the mechanical difference between the two models: one prices the labor, the other prices the outcome.

The same logic holds on short-term rentals, where fees are smaller in absolute terms but the incentive math is identical. A residential study quoted at $1,295 against an estimated $174,905 in first-year depreciation is a fixed number regardless of how that estimate ultimately lands. A percentage-priced firm working the same property would have every reason to push that estimate higher before finalizing it.

Getting a number without a percentage attached

A free Preliminary Benefit Estimate at /qualify models a building's likely first-year acceleration before any fee is discussed, so an owner can see the projected number and the guarantee floor side by side before committing to anything.

Whether a given fee structure matters for your situation, and whether a specific deduction fits your facts, are questions for your CPA. What the estimate and a delivered study show is the number the mechanics produce for the property in question, priced the same way regardless of whether that number turns out to be larger or smaller than expected once the engineering is complete.

Frequently asked questions

Is percentage-of-savings pricing illegal for cost segregation?

No, it is not illegal. It is a fee structure choice. The concern is not legality, it is that tying a firm's fee to the size of the deduction creates an incentive to report a larger number, which is separate from whether the classification is actually accurate.

How much does an engineered cost segregation study typically cost?

Every study is custom-quoted per property based on size and complexity. Recent illustrative commercial quotes have run 9,000 to 12,000 dollars, and a single-family rental study was quoted at 1,295 dollars. There is no flat rate card.

What percentage of building basis usually gets reclassified?

Roughly 15 to 35% of building basis typically shifts into faster 5-, 7-, or 15-year schedules, varying by property type, with restaurants at the high end and simple shells at the low end. A number well outside that range needs documentation explaining why.

Does Basis charge based on the size of the deduction?

No. Basis quotes every study individually based on the building's size and engineering complexity, not on the projected deduction. The fee is paired with a guarantee floor of 20x on commercial or 30x on an STR, or the study is free.