cost segregation

The 9 Key Elements for a Quality, IRS Compliant Cost Segregation Report

What is the purpose of cost segregation for your real estate investment property?

The concept of cost segregation as a tax reporting strategy allows us to identify and reclassify certain real estate property assets so that we can shorten the tax life of these assets for taxation purposes. This allows for a reduction in current income taxes.

How do you know if you have a quality, IRS compliant cost segregation study & report?

As with so many tax related questions we go straight to the source on this, or to the IRS itself.

The study & the report are 2 different parts in the cost segregation process. This article is about the 9 key elements for a quality cost segregation report. Learn about the 13 key elements for a quality cost segregation study.

We’ll start first with the 3 main areas that every cost segregation study & report needs to have.

Key Elements Cost Segregation Report

What are the 3 Main Areas of a Cost Segregation Study & Report?

The IRS holds that there are 3 main areas that every cost segregation study & report needs to include. It should:

  1. Classify assets into property classes

  2. Explain the rationale (including legal citations) for classifying assets as either § 1245 or § 1250 property

  3. Substantiate the cost basis of each asset and reconcile total allocated costs to total actual costs

What defines a quality, IRS compliant cost segregation report?

Your cost segregation report must be accurate & well documented in regards to the 3 main points above.


“Quality studies greatly expedite the Service’s review, thereby minimizing the audit burden on all parties.”

— IRS


What are the 9 key elements in a quality, IRS compliant cost segregation report?

These 9 elements in your cost segregation study help to be characterized as quality report, as defined by the IRS, and include:

  1. Summary Letter/Executive Summary

  2. Narrative Report

  3. Schedule of Assets

  4. Schedule of Direct and Indirect Costs

  5. Schedule of Property Units And Costs

  6. Engineering Procedures

  7. Statement of Assumptions And Limiting Conditions

  8. Certification

  9. Exhibits

How Do I Ensure My Cost Segregation Report is a quality, IRS compliant Report?

We include all 9 of these key elements in every cost segregation report we perform so we can discuss with you how to ensure your cost segregation report meets these requirements. Reach out to us to start a conversation & request a complimentary tax savings estimate for your real estate property. We need a few details about your property & then we can have a tax savings estimate sent your way so you can decide whether cost segregation makes the most sense for your investment property.

The 13 Key Elements for a Quality, IRS Compliant Cost Segregation Study

What is the purpose of a cost segregation study for your real estate investment?

The concept of cost segregation as a tax reporting strategy allows us to identify and reclassify certain real estate property assets so that we can shorten the tax life of these assets for taxation purposes. This allows for a reduction in current income taxes.

How do you know if you have a quality, IRS compliant cost segregation study & report?

As with so many tax related questions we go straight to the source on this, or to the IRS itself.

The study & the report are 2 different parts in the cost segregation process. This article is about the 13 key elements for a quality cost segregation study. Learn about the 13 key elements for a quality cost segregation report.

We’ll start first with the 3 main areas that every cost segregation study & report needs to have.

13 Key Elements Quality Cost Segregation Study

What are the 3 Main Areas of a Cost Segregation Study & Report?

The IRS holds that there are 3 main areas that every cost segregation study & report needs to include. It should:

  1. Classify assets into property classes

  2. Explain the rationale (including legal citations) for classifying assets as either § 1245 or § 1250 property

  3. Substantiate the cost basis of each asset and reconcile total allocated costs to total actual costs

What defines a quality, IRS compliant cost segregation study?

Your cost segregation study must be accurate & well documented in regards to the 3 main points above.


“Quality studies greatly expedite the Service’s review, thereby minimizing the audit burden on all parties.”

— IRS


What are the 13 key elements in a quality, IRS compliant cost segregation study?

These 13 elements in your cost segregation study help to be characterized as quality report, as defined by the IRS, and include:

  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 (e.g. I.R.C. § 263A, Change in Accounting Method And Sampling Techniques)

How Do I Ensure My Cost Segregation Study is a quality, IRS compliant Study?

We include all 13 of these key elements in every cost segregation study we perform so we can discuss with you how to ensure your cost segregation study meets these requirements. Reach out to us to start a conversation & request a complimentary tax savings estimate for your real estate property. We need a few details about your property & then we can have a tax savings estimate sent your way so you can decide whether cost segregation makes the most sense for your investment property.

Cost Segregation & Tax Savings for Hotels

What is Cost Segregation?

Cost segregation is a tax reporting strategy which identifies and reclassifies certain assets to shorten the time for taxation purposes, allowing for a reduction in current income taxes.

The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated, or “written off”, over a shorter tax life (typically 5, 7 and 15 years) & separate those out from the hotel building itself (which, for commercial property like a hotel, has a tax life of 39 years).

So this cost segregation study helps you to accelerate the depreciation of your hotel building, thus allowing you to write off more on your tax return, reduce your income taxes & free up money for additional investment opportunities or current operating needs.

Further, recent tax law changes under the Tax Cuts and Jobs Act of 2017 (TCJA) have also given a boost to cost segregation. Bonus depreciation was increased from 50% to 100% on certain qualifying assets.

This means that, as a hotel property owner, you will receive immediate expensing, or “write off”, of certain 5, 7 & 15 year tax life property. The TCJA also allows used property that was acquired after Sept. 27, 2017 to qualify for this special depreciation treatment. A quality cost segregation study will separate out any costs that qualify under the new bonus depreciation rules.

Hotel Cost Segregation Tax Savings

How Does Cost Segregation Benefit Me & My Hotel Business?

  • Write off tax deductions much faster

  • Enhance cash flow {which can allow you to acquire more hotels or investment property faster}

  • Create Net Operating Loss {NOL} carry backs

  • And more cost saving benefits, depending upon your hotel building

How Does the Cost Segregation Process Work?

An engineering study is typically recommended on hotel buildings valued at $750,000 or more. This study evaluates your hotel, where an onsite visit occurs to identify & assess the various components of your hotel’s building structure.

Next, an offsite analysis occurs where these components are separated out & then sorted into categories where some can be written off faster on your tax return. This categorization is the key to what will allow you to reduce your tax bill.


“Cost segregation is one of the best & most powerful tax savings strategies available to hotel owners today”

— Bob Steward


When is the Best Time To Do Cost Segregation?

Because of the tax savings benefits that can occur from doing cost segregation on your hotel, any time is a great time to do a cost segregation study. There are also some optimal times to do the study & these include:

  • When new construction plans for your hotel have been finalized

  • When you are purchasing an existing hotel

  • While adding leasehold improvements {whether you are a lessee or lessor} to either an existing building or doing a buildout of a leased space

  • When the costs for remodeling your hotel have been finalized

  • In the crucial beginning years of operating your hotel, when the tax savings can help to increase your cash flow when you most need it

What Should I Do to Get Started with Cost Segregation?

Reach out to us to start a conversation & request a complimentary tax savings estimate for your hotel. We just need a few details about your hotel & then we can have a tax savings estimate right off to you so you can decide whether it makes the most sense for your hotel business.