Approach to Cost Segregation Studies


AEC conducts each cost segregation project using the Detailed Engineering method specified by the IRS.

In 2007 the IRS issued the Cost Segregation Audit Techniques Guide, which sets forth 13 Key Principles to determine a Quality Cost Segregation Study. AEC fully complies with each area of the ATG. Two Key Principles include:

  • For New Construction, “The Detailed Engineering approach uses costs from contemporaneous construction and accounting records. Construction-based documentation, such as blueprints, specifications, contracts, job reports, change orders, payment requests, and invoices are used to determine unit costs.”
  • For Acquired Properties, “In a quality study, cost estimates are always reconciled to an acquisition price, a total project cost, or to a component system cost to ensure the accuracy of an allocation.” AEC thoroughly and clearly explains and documents the proper use of the estimation process to ensure full compliance with IRS requirements.

For more information see the IRS website.

Our Key Processes

  • Provide a complementary Feasibility Assessment to determine the potential after-tax cash flow benefits to the client.
  • Evaluate and verify the Tax Status to ensure that a Cost Segregation Study will be of a true benefit to the client.
  • Provide the client with a conservative and realistic Benefits/Cost Ratio. Typically, this is 20:1 or greater.
  • Provide the Cost Segregation Study under a Fixed Fee.
  • Conduct an On-Site Visit of the facility and to document the various components and systems. Document key components through site photos.
  • Conduct a Detailed Engineering Review of all assets, blueprints, AIA documents, change orders. Document all estimates and ‘take-off’ calculations, unit costs and/or reconstructed costs.
  • For each component, Classify by Appropriate Tax Life as proscribed by the IRS guidelines and relevant case law.
  • Review and Reconcile All Adjustments with client and CPA.
  • Deliver a Formal Cost Segregation Report with an executive summary, benefits analysis, final listing of reclassified assets, pre-analysis reconciliation, detailed engineering take-offs and indirect costs, all supported by appropriate case law and IRS revenue rulings. A typical report is 50-75 pages.