How to Choose a Cost Segregation Company: 7 Questions to Ask
- Apr 5
- 4 min read
How to Choose a Cost Segregation Company: 7 Questions to Ask
A cost segregation study can save you six figures in taxes. The wrong firm can deliver a sloppy report that gets challenged in an IRS audit -- or worse, gets disallowed entirely.
Choosing the right cost segregation company matters more than most investors realize. The industry has expanded significantly in recent years. Some firms are engineering-based with deep IRS audit experience. Others are tax-only shops that produce reports with limited documentation. A few are essentially resellers farming the work out to cheaper providers.
Here are the 7 questions you should ask every firm you consider -- and what the right answers look like.
Question 1: Is Your Methodology Engineering-Based?
This is the first and most important question.
There are two types of cost segregation studies:
Engineering-based studies involve a qualified engineer or architect physically reviewing the property (or detailed construction documents) and performing a detailed component analysis. They identify specific assets -- HVAC ducts, electrical systems, specialty flooring, parking lot, landscaping -- and assign defensible cost basis to each.
Tax-only or rule-of-thumb studies use estimates, industry percentages, or spreadsheet formulas without a site visit or engineering analysis. These studies are faster and cheaper. They are also far more vulnerable to IRS challenge.
The right answer: Engineering-based methodology, with a licensed engineer or architect involved in the analysis.
The IRS specifically endorses engineering-based methodology in its Cost Segregation Audit Techniques Guide. Studies that deviate from this approach carry higher audit risk.
Question 2: What Is Your IRS Audit Track Record?
Every firm claims their studies are 'IRS-defensible.' Almost none of them can back that up with actual audit data.
Ask directly: How many of your studies have been audited by the IRS? What were the outcomes?
The right answer: A firm that has been through multiple IRS audits with zero or minimal disallowments. This is the gold standard and very few firms can claim it.
USA Cost Segregation has been through 12-14 IRS audits with zero disallowments. That is not a marketing claim -- it is a documented track record that protects our clients.
If a firm hedges, cannot provide specifics, or has never been audited, proceed with caution.
Question 3: Will You Conduct a Site Visit?
Some firms deliver cost segregation studies without ever visiting the property. They rely on construction documents, invoices, or satellite imagery.
While remote analysis can work for smaller or simpler properties, a site visit is standard practice for a thorough engineering-based study. It allows the engineer to identify assets that are not always visible in blueprints -- specialty electrical, plumbing configurations, process-specific improvements, and more.
The right answer: Yes, a site visit is included for properties above a certain size threshold. The engineer will review the property in person before finalizing the report.
Question 4: Does Your Report Include Asset-Level Detail?
A defensible cost segregation report is not a one-page summary. It is a detailed document that identifies each component, assigns it to an asset class, and documents the basis allocated to that asset.
Ask to see a sample report. Does it include:
An itemized list of assets with cost basis allocated to each
Photos of components where relevant
MACRS class assignments with supporting rationale
A methodology section explaining the approach
Engineer credentials and certification
The right answer: Yes. The firm should be able to provide a sample report showing this level of detail.
Firms that cannot (or will not) show you a sample report are a red flag.
Question 5: Do You Provide a Lookback Study Service?
Many property owners discover cost segregation years after acquiring a property. The good news: you can still capture the missed depreciation.
A cost segregation lookback study (sometimes called a catch-up study) allows you to claim all the depreciation you should have taken in prior years -- in a single year -- without amending prior returns. This is done via Form 3115 (Change in Accounting Method).
The right answer: Yes, we offer lookback studies and work with your CPA to file the Form 3115 correctly.
Question 6: How Do You Handle Qualified Improvement Property (QIP)?
Qualified Improvement Property -- interior improvements to nonresidential buildings placed in service after the building's original construction -- is one of the most complex and high-value categories in modern cost segregation.
The CARES Act (2020) corrected a drafting error that had been denying QIP owners 100% bonus depreciation. Since then, QIP treatment has been a significant source of catch-up deductions for property owners who renovated commercial buildings between 2018 and 2022.
The right answer: The firm should understand QIP fully, ask about your renovation and improvement history, and incorporate QIP analysis into the study.
Question 7: What Is Included in the Fee?
Cost segregation pricing varies widely. Fees generally range from $5,000 to $15,000 for a typical commercial property, depending on size and complexity.
But price is not the right variable. Value is.
Ask what is included:
Does the fee cover the site visit?
Is the final report included or billed separately?
What happens if the study is audited -- do they provide audit support?
Are there additional fees for the Form 3115 coordination?
The right answer: A firm that gives you a clear, all-in fee with audit support included (or priced clearly) is a better choice than the cheapest option.
The Bottom Line
Choosing a cost segregation firm is not like hiring a commodity service provider. The quality of the work -- and the defensibility of the report -- directly affects your tax savings and your audit risk.
The right firm will:
Use engineering-based methodology with a real site visit
Have an IRS audit track record they can document
Produce detailed, asset-level reports
Handle lookback studies and QIP analysis
Give you clear, all-in pricing with audit support
USA Cost Segregation checks all of these boxes. We have been through 12-14 IRS audits with zero disallowments. We use ALETHIA technology to ensure our studies are accurate, comprehensive, and defensible.
Contact us for a free estimate. We will tell you upfront whether your property is a strong candidate and what kind of savings range to expect.
This post is for informational purposes only and does not constitute tax advice. Consult a qualified CPA or tax attorney for advice specific to your situation.