How to Read a Cost Segregation Study in the Right Order

Read the scope and assumptions

Confirm the property, owner, acquisition history, service dates, and work covered. Identify whether improvements and furnishings are included. Ask about missing information and assumptions that materially affect the analysis.

Reconcile the total basis

Compare report totals with closing records and improvement costs. Identify land and any amounts already reported separately. A classification schedule should not create duplicate costs or assume that land can be depreciated.

Review the asset detail

Look beyond a summary percentage. Examine descriptions, classifications, methodology, and the support available for questions. Mark unfamiliar categories for discussion with the study provider and tax preparer.

Ask about implementation

The report and the return are separate deliverables. The preparer needs prior schedules and taxpayer facts to determine reporting procedure and current deduction use. Keep final schedules, carryforwards, and the study together for future years.

Action checklist

• Confirm scope and property facts
• Reconcile basis
• Review asset classifications
• Provide prior schedules
• Retain implementation records

Is the accelerated depreciation total the same as tax savings?

No. Tax effects depend on deduction timing, utilization, rates, and other taxpayer-specific facts.

Source material

• IRS: tips on rental real estate income deductions and recordkeeping
• IRS: p925

General education. Apply the rules for the relevant tax year and review the facts with a qualified tax professional.