The Facts About Do-It-Yourself Cost Segregation
DIY cost segregation in its purest form would be you or your tax preparer generating a guesstimate of the short life property found in your asset. It is legal providing you do not materially overstate the amount of depreciation. However, the IRS standard for calculating depreciation is specific.
Cost Segregation requires assigning the “proper recovery period” to each asset. A commercial or residential building may have over 100 short-life components. To do a credible job, you need to know which assets are 5, 7, 15, 27.5 and 39 year and how to value them.
The IRS position on cost segregation is as follows:
BACKGROUND
In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property, whether acquired or constructed, often consists of numerous asset types with different recovery periods. Thus, property is typically separated into individual components or asset groups having the same recovery periods and placed-in-service dates to properly compute depreciation.”
The following is a direct quote from the IRS Audit Techniques Guide for cost segregation. It is clear that the IRS states, “to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset…”
DIY Team Approach
We can reduce the cost of the cost segregation study materially, often by 70%, if the scope of work does not require a site visit. Consider the following costs for cost segregation studies with and without a site visit:
Bonus Depreciation / Cost Segregation Fee Options
| Commercial/Multifamily | Rental Houses | |
| Includes On-Site Inspection | $5,000+ (1) | $750 to 1,500+ (2) |
| No On-Site Inspection | $2,500 (3) | $300 – $500 (4) |
- Cost segregation reports including a site inspection typically start at $5,000. Complex properties are more expensive and there can be discounts for a group of properties.
- Typically $1,500 for a single property if a site inspection is included; discounts available for groups.
- Most commercial properties can be reasonably done for a fee of $2,500 if no inspection is required. It may not be appropriate for complex properties and discounts are available for groups.
- Discounts for 5 or more in one order.