Buy a Cost Segregation Study that Withstands IRS Scrutiny

Cost segregation studies are creating quite a buzz in 2025 as a popular tax strategy for property owners looking to speed up their depreciation deductions and boost their cash flow. However, some investors are worried that purchasing and leveraging such a study could raise their chances of getting audited by the IRS.

Let’s take a closer look at how to buy a cost segregation study that minimizes audit risk and aligns with IRS guidelines.

IRS Perspective on Cost Segregation

The IRS sees cost segregation as a valid tax strategy, as long as it's done correctly. In fact, they've put together an Audit Techniques Guide (ATG) that specifically addresses cost segregation studies, detailing the methods and documentation needed to stay compliant. This shows that the IRS doesn't automatically consider cost segregation studies as potential audit triggers.

PDF Download >> Cost Segregation Audit Technique Guide

Best Practices for Purchasing a Cost Segregation Study the IRS Won't Challenge

1. Engage Qualified Professionals: Collaborate with Certified Cost Segregation Professionals (CCSPs) who possess the necessary experience and credentials.

   
   

2. Adhere to IRS Guidelines: Stick to the methodologies laid out in the IRS ATG to ensure you’re in compliance.

   
   

3. Maintain Comprehensive Documentation: Keep thorough records, including engineering reports, cost breakdowns, and photographs, to back up your asset classifications.

   
   

4. Adopt a Conservative Approach: Steer clear of aggressive asset classifications that can’t be justified, and make sure all your assumptions are reasonable and well-supported.

Factors That May Influence Audit Risk

While a properly conducted cost segregation study does not increase audit risk, certain factors can raise red flags with the IRS:

🚩Improper Methodology:

🚩Inadequate Documentation:

🚩Unqualified Preparers:

To Sum Up

When done right, the purchase and implementation of a cost segregation study doesn’t raise audit risk. If anything it actually acts as a solid financial shield for property owners. When using certified engineers who adhere to IRS guidelines, you get more than just a tax strategy. You get a well-documented, defensible position supported by in-depth analysis and legal backing.

To make the most of this opportunity, buy from a seasoned CPA who knows the ins and outs of real estate taxation. This partnership will ensure that your cost segregation strategy is not only in-line with current tax laws but also flexible enough to adapt to any upcoming regulatory changes. By blending technical know-how with strategic insight, you can set your real estate investments up for the best financial performance.