Guide · Cost segregation audit risk
A study is only worth the deduction it can defend.
You can now get a “cost segregation study” online in five minutes. You can also get one built from a physical site survey, priced component by component and backed by engineers if the IRS asks. They produce similar-looking reports. They are not the same thing.
Updated November 2026. Not tax advice; bring it to your CPA.
The short version
- ✓ Every study we arrange has a physical site survey
- ✓ Components priced at replacement cost new
- ✓ Reconciled to your actual purchase price
- ✓ A report your CPA can trace line by line
- ✓ Audit support from Veritax Advisors
Side by side
Engineered study vs. online estimate.
| Engineered, with a site survey | 5-minute online study | |
|---|---|---|
| How the numbers are made | Each component measured and priced at replacement cost new, then reconciled to your actual basis | A questionnaire and photos run through percentages from similar buildings |
| Site survey | Physical, every property, by a qualified construction professional | Usually none, or a virtual walkthrough |
| Who stands behind it | Engineers who prepared it, with the working papers | Often a software company, sometimes with no one to call |
| If the IRS asks | Audit support from Veritax, built on the survey and cost detail | You and your CPA defend a percentage |
| Speed | Weeks, after the site visit | Minutes to days |
| Where it fits | Purchases where the deduction is large enough to matter if it's challenged | Small properties where the stakes are low |
What the IRS looks for
The IRS has published what a good study looks like.
Its Cost Segregation Audit Techniques Guide is the playbook examiners use. It ranks detailed engineering approaches as the most accurate and treats rule-of-thumb shortcuts as the least reliable. These are the things it expects to find.
- [01]Prepared by people with construction and tax expertise.
- [02]A clear, written methodology.
- [03]An inspection of the property itself.
- [04]Costs that tie back to the actual purchase price or construction cost.
- [05]Each asset tied to its classification and recovery period, with the reasoning shown.
Asset reclassification
Moving cost off the 27.5 and 39-year schedules.
Without a study, almost the whole building depreciates over 27.5 years (residential rental) or 39 years (commercial). A study finds the parts that belong on faster schedules. Those parts also qualify for 100% bonus depreciation on property acquired after January 19, 2025.
| Schedule | What goes on it | Examples | Bonus eligible |
|---|---|---|---|
| 5-year | Personal property inside the building | Appliances, carpet, decorative lighting, dedicated electrical for equipment, many finishes | Yes |
| 7-year | Certain furniture and fixtures | Most common in commercial property: office furniture, some equipment | Yes |
| 15-year | Land improvements | Paving, driveways, sidewalks, landscaping, fencing, site lighting, outdoor amenities | Yes |
| 27.5-year | Residential rental structure | Walls, roof, structural framing, standard plumbing and HVAC in a rental home or apartment | No |
| 39-year | Commercial structure | The same structural items in an office, retail, industrial or mixed-use building | No |
How a Veritax Advisors study is built
Six steps, and none of them skipped.
Data collection
Your closing statement, purchase price and any improvement costs. These set the basis everything has to tie back to.
Physical site survey
A qualified construction professional walks the property, measures, photographs and records what is actually there. Every study, no exceptions.
Replacement cost new
Each component is priced at what it would cost to build new, using construction cost data, then adjusted and reconciled to what you actually paid.
Engineering review
Each asset is assigned its class and recovery period, with the reasoning written down: 5, 7 or 15 years, or the building's 27.5 or 39.
The report for your CPA
Asset-by-asset schedules your CPA uses on the return, including a look-back with Form 3115 if the property was placed in service in an earlier year.
Audit support
If the IRS examines the study, Veritax Advisors supports it with the survey, the cost detail and the reasoning behind every line.
The timeline, step by step, is on how it works.
Questions
Does a cost segregation study raise my audit risk?
A study is a normal, IRS-recognized way to compute depreciation, and it isn't a red flag by itself. A large loss on a return can draw attention whatever caused it. The real question is whether the numbers hold up when someone asks, and that comes down to how the study was built.
What is replacement cost new (RCN)?
It's the cost to build each part of the property new today: the flooring, the electrical runs, the paving, the roof. Pricing every component that way, then reconciling the total back to your actual purchase price, gives allocations that rest on the building itself rather than on an average.
Why does the site survey have to be physical?
Because the study is a claim about what is in the building. Someone who was there can measure the paving, count the fixtures and photograph the finishes. A percentage model or a phone video can't, and that's where challenged studies usually lose ground.
Are the 5-minute online studies wrong?
Not always. For a small property with a modest deduction, a quick estimate can be a reasonable trade. The problem is using one to support a six-figure deduction against W-2 income. If the IRS looks, you're defending a formula, not a survey. We'd rather tell you which one your property needs than sell you the bigger one.
What does my CPA need from the study?
The asset detail by recovery period, the methodology and the support behind it. Plenty of CPAs are rightly skeptical of studies they can't trace. An engineered study with a site survey gives them something they can trace, and we're happy to get on a call with them.
Who actually performs the study?
Veritax Advisors' engineers. Realm is their channel partner: we find the fit, run the estimate, coordinate the study and stay with you through delivery and your CPA conversation.
Related: cost segregation studies, the STR loophole, the high-income guide.
See the number before you decide.
A free estimate shows what an engineered study would find on your property, within 48 hours. If a cheaper route makes more sense for you, we’ll say so.