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Resources: the primary sources behind the study

The authorities a SegFlow study cites, with links to the official texts.

Regulatory framework

IRS Cost Segregation Audit Techniques Guide, Publication 5653 (rev. February 2025). The examiner's handbook: the 13 principal elements below, and common components by industry. https://www.irs.gov/pub/irs-pdf/p5653.pdf

IRC §1245 and §1250. Separate tangible personal property from the building and its structural components, and govern recapture on sale. https://www.law.cornell.edu/uscode/text/26/1245 and https://www.law.cornell.edu/uscode/text/26/1250

Treas. Reg. §1.48-1(e)(2). Defines structural components: walls, floors, ceilings, permanent coverings, windows and doors, central heating and air conditioning, plumbing, wiring and lighting, stairs, elevators, sprinklers. https://www.law.cornell.edu/cfr/text/26/1.48-1

Rev. Proc. 87-56. Asset classes and recovery periods under MACRS. Class 00.3 land improvements, 15-year; class 57.0, 5-year, covering most personal property in a rental. Reproduced as Appendix B of Publication 946. https://www.irs.gov/publications/p946

Publication 527, Residential Rental Property. Confirms 27.5 years, and lists appliances, carpet and furniture in a rental as 5-year property. https://www.irs.gov/publications/p527

Form 3115, Application for Change in Accounting Method. A study on property placed in service in a prior year is an automatic method change with a §481(a) catch-up, not an amended return. Procedures in Rev. Proc. 2015-13; automatic change number 7 (Rev. Proc. 2024-23 §6.01, or its successor). https://www.irs.gov/forms-pubs/about-form-3115

Tangible property regulations and partial dispositions. Treas. Reg. §1.263(a)-1 to -3 on repairs versus improvements (https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations), and §1.168(i)-8 on the partial disposition election for a component the study separately identified (https://www.law.cornell.edu/cfr/text/26/1.168(i)-8).

Bonus depreciation. The 2025 budget reconciliation law (Public Law 119-21) made 100% bonus permanent for qualifying property acquired after January 19, 2025; the 5-, 7- and 15-year classes qualify, the building does not. Earlier acquisitions stay on the phase-down (40% for 2025), and the acquisition date follows the written binding contract rules of Treas. Reg. §1.168(k)-2. Interim guidance: IRS Notice 2026-11. https://www.irs.gov/pub/irs-drop/n-26-11.pdf

The 13 principal elements of a quality study

An examiner judges a study against these. The SegFlow study is organized against them and states which depend on you.

  1. Preparation by an individual with expertise and experience.
  2. Detailed description of the methodology.
  3. Use of appropriate documentation.
  4. Interviews conducted with appropriate parties.
  5. Use of a common nomenclature.
  6. Use of a standard numbering system.
  7. Explanation of the legal analysis.
  8. Determination of unit costs and engineering take-offs.
  9. Organization of assets into lists or groups.
  10. Reconciliation of total allocated costs to total actual costs.
  11. Explanation of the treatment of indirect costs.
  12. Identification and listing of §1245 property.
  13. Consideration of related aspects, such as IRC §263A, change in accounting method and sampling.

Elements 1 and 4 are met by your review and by the intake questions answered from the client's facts. There is no site inspection and no engineer's signature.

The 13 principal elements of a quality study and how the study meets each: 1, Preparation by an individual with expertise and experience: Prepared under standing rules written with cost segregation practitioners and delivered for the preparer's review. (completed with the preparer); 2, Detailed description of the methodology: Method section: detailed engineering cost estimate approach reconciled pro rata to the depreciable basis (ATG Chapter 3).; 3, Use of appropriate documentation: Photographs, closing and assessor documents listed in the property section; evidence photo ids per line.; 4, Interviews conducted with appropriate parties: Intake card answered by the preparer; questions and assumptions recorded. (completed with the preparer); 5, Use of a common nomenclature: Component names follow construction estimating usage; MACRS classes per Rev. Proc. 87-56.; 6, Use of a standard numbering system: Each line carries a stable id and a class; the Excel ledger carries benchmark page references.; 7, Explanation of the legal analysis: Authority cited per line (§1245 / §1250, Hospital Corporation of America, Whiteco, Rev. Proc. 87-56, the ATG).; 8, Determination of unit costs and engineering "take-offs": Quantity derivation per line; unit costs from a recognized construction cost estimating guide and market data, with the cost path stated per line.; 9, Organization of assets into lists or groups: Schedule by class; ledger in the Excel deliverable.; 10, Reconciliation of total allocated costs to total actual costs: Reconciliation table in the Method section: estimated new cost, share and allocated basis per class; factor = depreciable basis ÷ total estimated new cost, capped; premium above the cap to the building.; 11, Explanation of the treatment of indirect costs: Soft costs carried by the reconciliation scaling up to the cap; excess to residual structure.; 12, Identification and listing of §1245 property: Schedule by class, 5- and 7-year lines.; 13, Consideration of related aspects: Review notes: bonus-depreciation date test, look-back and Form 3115 flag, land value source..

  1. 01Preparation by an individual with expertise and experiencewith the preparer
    Prepared under standing rules written with cost segregation practitioners and delivered for the preparer's review.
  2. 02Detailed description of the methodology
    Method section: detailed engineering cost estimate approach reconciled pro rata to the depreciable basis (ATG Chapter 3).
  3. 03Use of appropriate documentation
    Photographs, closing and assessor documents listed in the property section; evidence photo ids per line.
  4. 04Interviews conducted with appropriate partieswith the preparer
    Intake card answered by the preparer; questions and assumptions recorded.
  5. 05Use of a common nomenclature
    Component names follow construction estimating usage; MACRS classes per Rev. Proc. 87-56.
  6. 06Use of a standard numbering system
    Each line carries a stable id and a class; the Excel ledger carries benchmark page references.
  7. 07Explanation of the legal analysis
    Authority cited per line (§1245 / §1250, Hospital Corporation of America, Whiteco, Rev. Proc. 87-56, the ATG).
  8. 08Determination of unit costs and engineering "take-offs"
    Quantity derivation per line; unit costs from a recognized construction cost estimating guide and market data, with the cost path stated per line.
  9. 09Organization of assets into lists or groups
    Schedule by class; ledger in the Excel deliverable.
  10. 10Reconciliation of total allocated costs to total actual costs
    Reconciliation table in the Method section: estimated new cost, share and allocated basis per class; factor = depreciable basis ÷ total estimated new cost, capped; premium above the cap to the building.
  11. 11Explanation of the treatment of indirect costs
    Soft costs carried by the reconciliation scaling up to the cap; excess to residual structure.
  12. 12Identification and listing of §1245 property
    Schedule by class, 5- and 7-year lines.
  13. 13Consideration of related aspects
    Review notes: bonus-depreciation date test, look-back and Form 3115 flag, land value source.
The 13 principal elements from the IRS Cost Segregation Audit Techniques Guide, with how the study meets each, as written in the sample study's method section. Elements 1 and 4 are completed by the preparer's review and the intake answers; there is no site inspection and no engineer's signature.

Case law

Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997). Carried the investment-credit tests for personal property across to depreciation, so branch wiring serving equipment and carpet can be recovered as §1245 property. The decision underlies modern cost segregation.

Whiteco Industries v. Commissioner, 65 T.C. 664 (1975). The six factors of permanence: whether the item can be and has been moved, whether it was designed to remain, the expected length of affixation, the difficulty of removal, the damage removal causes, and the manner of attachment.

Scott Paper Co. v. Commissioner, 74 T.C. 137 (1980). Allowed the part of a building's electrical system serving specific equipment to be allocated to §1245 property by the load it carries — the principle behind dedicated-circuit lines.

The documentation guide describes what to upload. The owner photo checklist is a page you can forward by email. Questions: admin@segflowai.com, answered within one business day.