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REFERENCE · DEFENSIBILITY CHECKLIST

What a defensible cost segregation study contains.

The IRS Audit Techniques Guide names six characteristics of a quality study. In practice, four carry most of the weight. Walk through these against any study you receive.

Reading time · 11 min Updated · 05 / 26 Source · IRS ATG
01

Engineering basis

A defensible study identifies components from the property — not from a ratio applied to the purchase price.

Site visit performed
Either by the preparer or, in standardized residential workflows, via structured photo capture and floorplan documentation.
Drawings or floorplans reviewed
Where available; absence is not fatal but is noted.
Take-offs performed for material components
Linear feet of trim, square feet of flooring, fixture counts.
Source cost data referenced
Invoices, contractor bids, RSMeans, Marshall & Swift, or similar published cost data.
02

Documentation depth

The standard examiners apply is reproducibility — could another competent preparer arrive at the same result from the workpapers alone?

Photographs of property exterior, interior, and key components
Date-stamped and organized by asset class.
Asset detail with cost basis allocation
Per item or per category, depending on study type.
Classification rationale per asset class
Why a given component sits in 5-, 7-, 15-, or 39-year property.
Citations to authority for each non-obvious classification
Treas. Reg. §1.263(a), the IRS ATG, or court decisions.
03

Consistency with §1.263(a)

The regulations distinguish what must be capitalized from what can be expensed. Reclassifications need to sit on the right side of that line.

Reclassifications align with the regulations
Components defined as building structure stay there; components properly treated as personal property move.
Court-tested positions used where applicable
Hospital Corp. of America v. Commissioner and its progeny remain the working framework for component classification.
Ambiguous positions disclosed, not asserted
Where a reasonable preparer might reach a different conclusion, the study cites its rationale.
Form 3115 prepared where required
Look-back studies on properties placed in service in prior years require a change-in-accounting-method filing.
04

Reasonable class lives

MACRS class lives are published. The defensible study uses them as published, not as marketing copy stretches them.

Class lives match Rev. Proc. 87-56 / IRC §168
Personal property components in their proper 5- or 7-year buckets.
Land improvements correctly identified
Site lighting, paving, fencing, landscaping in 15-year property.
Bonus depreciation applied per current phase-out schedule
For 2026 acquisitions, the applicable bonus percentage; not last year's rate.
Building components remain in 27.5- or 39-year property
Structural components are not reclassified just because they could be touched.

For comparison: costsegregationreviews.com tracks how providers approach defensibility differently across the major US firms — useful as an editorial cross-reference.

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Run your study through the checker.

Six yes/no questions. Calibrated against the same four characteristics above. For documented examples of when defensibility was tested in audit, see the failure-mode reference.

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