How a Cost Segregation Study Works: From Submission to Tax Return

The process of getting a cost segregation study is much simpler than most investors expect. Here is exactly what happens from the time you submit your property to when your CPA files your taxes.

Step 1: Submit Your Property Details

The intake process takes about five minutes. You provide:

• Property address
• Purchase price and date placed in service
• Property type (single-family, condo, duplex, short-term rental, etc.)
• Interior and exterior photos
• Any renovation details or improvements

Photos are the most important input. Clear photos of each room, flooring materials, countertops, cabinetry, fixtures, appliances, landscaping, and any outdoor features give our team the information needed to accurately classify components. The more detail in the photos, the more accurately we can identify short-life assets, which directly increases your deductions.

If the property has a rental listing on Airbnb, Zillow, or a similar platform, that link is also useful because listing photos often provide exactly what we need.

Step 2: Engineering Analysis

Once your submission is received and payment is processed, our team conducts the cost segregation analysis. This involves:

• Reviewing your photos and property details alongside public records and satellite imagery
• Identifying each component of the property by category: personal property, land improvements, and structural components
• Assigning each component to its correct IRS MACRS recovery period (5-year, 7-year, 15-year, or 27.5-year)
• Allocating cost basis to each component based on the property's purchase price and the relative value of each component

The methodology follows IRS cost segregation guidance and MACRS classification rules. Every classification decision is documented and supportable.

Step 3: Report Delivery

Completed reports are delivered within 2 business days of submission and payment. The report includes:

• A complete asset schedule with each component classified by IRS recovery period
• Cost basis allocations showing how the purchase price is distributed across the asset classes
• The 5-year, 7-year, and 15-year property totals your CPA needs to calculate accelerated depreciation
• Supporting documentation for the methodology and classifications

The report is formatted to give your tax preparer exactly what they need with no additional interpretation required.

Step 4: Your CPA Applies the Depreciation

You send the completed report to your CPA or tax preparer. They use the reclassified asset schedule to:

Apply the correct MACRS depreciation to each asset class on Form 4562. The 5-, 7-, and 15-year components receive accelerated depreciation including any applicable bonus depreciation. The remaining basis stays on the 27.5-year schedule.

Audit Protection

Every Segonomics study includes audit protection. If the IRS or a state taxing authority questions your cost segregation deductions, we provide documentation supporting our methodology and classifications and respond to reasonable written inquiries at no additional charge.

The Full Timeline

That is the complete process. If you want to understand more about whether the numbers make sense for your property, start with the free savings calculator or read about how much you can realistically expect to save.