Reviewing a cost segregation study before filing? This checklist covers what to verify, what to spot-check, and what audit-defense documentation should be in the report.
What to verify
- Total reclassified basis matches the property's depreciable basis (purchase price minus land allocation)
- MACRS classifications follow IRS Audit Techniques Guide categories (5-yr personal property, 15-yr land improvements, 27.5/39-yr structure)
- Bonus depreciation election applied correctly (100% under OBBBA for property placed in service 2025+)
- Cost basis traceable to RSMeans 2024 (or comparable defensible source) with regional and quality multipliers documented
- Land valuation supported by county assessor data or statistical fallback with reliability score
What to spot-check
- Does the reclassification % look right for the property type? (16-22% SFR, 20-28% STR, 22-26% small MF, 25-32% office, 26-32% retail)
- Are land improvements (15-yr) appropriately separated from the building shell?
- For STR: is FF&E weighted into the 5-yr bucket appropriately?
- For commercial: is specialty MEP (medical, restaurant, dental) recognized?
Audit-defense documentation that should be in the report
- Methodology section citing IRS Audit Techniques Guide
- Engineer attestation
- RSMeans 2024 cost basis with regional + quality multipliers
- QC gate result (PASS/REVIEW/FAIL classification)
- Form 3115 readiness statement (for lookback studies)
If you don't see these
Push back. A defensible cost-seg report should have all six items above. If your client's report is light on any of them, the audit-defense posture is weaker than it should be.