Short answer

The adviser who signs the return is the person the study is for. The practitioner classified and costed; the adviser decides whether to apply the result, how, and with what elections, and is answerable for the position under Circular 230's diligence, competence and return-position standards. Circular 230 permits reasonable reliance on information furnished by others, and reasonable reliance on a cost segregation study means reading it against the IRS guide's elements before carrying its asset list into the schedule. This article is a working checklist for that review: what to verify in the study, what to reconcile to the client's records, what to model before electing, how to apply a look-back, and how to document the reliance. It is general education for advisers, not a substitute for professional judgement on a specific return.

Step 1: verify the study is a study

CheckWhat to look forGuide element
PreparerNamed individual with credentials and experience; a reviewerExpertise and experience
MethodologyWhich approach, stated; records versus estimates; residuals disclosedDescription of methodology
EvidenceDocument index; site record; photographs keyed to assetsDocumentation; interviews
Legal analysisA reason for each contested classificationExplanation of the legal analysis
Asset listQuantities, unit costs with sources, class, dates, actual/estimate flagsTake-offs; unit costs; organized list
Indirect costsIdentified and allocated by a stated methodTreatment of indirect costs
ReconciliationTies to capitalized basis; differences explainedReconciliation to actual costs
LimitationsConsistent with the engagement letter and the evidenceRelated aspects

A study missing the asset list, the legal analysis or the reconciliation is a percentage, and reliance on it is not reasonable. Send it back.

Step 2: reconcile to the client's records

  1. Basis. The study's capitalized basis must equal the client's: closing statement plus settlement costs that enter basis, or construction records plus owner soft costs. Differences are usually settlement costs or financing costs treated inconsistently.
  2. Land. The study's land allocation must match, or improve on, the return's. If the return already depreciated the land, the study has found a second problem.
  3. Dates. Placed in service against the certificate of occupancy, lease or listing; acquisition date against the contract, for the bonus depreciation regime.
  4. Later purchases. Items the client already expensed under the de minimis safe harbor or capitalized separately must not appear twice.
  5. Prior schedules. For an existing building, the depreciation claimed to date, by asset, for the section 481(a) computation.

Step 3: model before electing

  • Passive activity. Rental losses are generally passive. Model the client's position: special allowance, real estate professional status with material participation, passive income, or a suspended loss. For partners, basis and at-risk limits first.
  • Bonus depreciation. For qualified property acquired after January 19, 2025, 100 percent applies unless the transition election is made for the first year ending after that date or the client elects out by class. Property acquired earlier, including under a pre-January 20, 2025 binding contract, stays on the phase-down. Decide by class, on the model.
  • Section 179. Available only if the rental activity is a trade or business and within the limits; usually secondary to bonus depreciation for rentals.
  • State. Decoupled states need a second schedule from year one; model the state result before the client sees a combined-rate projection.
  • Exit. Recapture at ordinary rates on the reclassified property; the holding period and any exchange plan.

Step 4: apply a look-back correctly

For a building already in service, the study is applied through Form 3115 under the automatic procedures: recompute depreciation from the placed-in-service date under the study's classifications using the rules in force each year, including the bonus rate that applied when the property was placed in service; compute the section 481(a) adjustment; take a negative adjustment in full in the year of change; attach the form to the timely filed return and file the copy the instructions require. Check the eligibility rules, including the year-of-disposition limit, before promising the client anything.

Step 5: carry the schedule

Enter the asset list on the fixed-asset ledger with class, method, convention and dates; report on Form 4562 by class; keep the study's asset numbering so later partial dispositions and the Form 4797 computation at sale can be done asset by asset. In a decoupled state, keep the state column from the first year.

Step 6: document reliance

Reliance is reasonable when it is documented. Keep in the file: the study and its workpapers; the checklist above with findings; the reconciliation to the client's records; the model and the elections decided; correspondence with the practitioner resolving questions; and the engagement letter defining the practitioner's role in an examination. If the study was corrected at the adviser's request, keep the before and after.

Timing the review

Review the draft, not the final. A practitioner who sends a draft asset list and reconciliation before issuing the report expects questions, and corrections made at that stage cost nothing; corrections after the return is filed cost an amended return or a method change. Ask for the draft in the engagement letter, set aside the time to read it against the checklist, and send written questions with the client copied. The final report should then arrive as a document the adviser has already accepted in substance.

Working with the practitioner

Ask questions in writing and expect written answers with authority. Reasonable disagreement about a classification is normal; the adviser decides the return position and records both views. A practitioner who will not identify the preparer, produce workpapers or explain a classification is telling the adviser what the study is worth.

What people ask on Reddit and other forums

Advisers ask their own questions in the "cost segregation reddit" threads on r/tax and r/Accounting, usually about a client's study they did not commission. The searches that lead people to these threads are usually phrased "CPA review cost segregation study", "applying a cost segregation study to a return" and "cost segregation for tax preparers".

"Client handed me a cost seg from an online vendor. Do I have to use it?" No. Review it against the guide's elements; if it lacks the asset list, legal analysis and reconciliation, reliance is not reasonable and the client should be told why.

"Can I rely on the study without checking it?" Circular 230 permits reasonable reliance on information furnished by others; reasonable means read and reconciled, not filed.

"Who does the 3115?" The adviser. The practitioner supplies the asset list and the recomputation support.

"The study applied 100 percent bonus to a 2024 contract closed in 2025." Property acquired under a written binding contract is treated as acquired no later than the contract date; the phase-down likely applies. Correct it before filing.

Questions people also ask

What should a CPA check in a cost segregation study?

The preparer's identification, the methodology, the evidence, the legal analysis, the asset list with sources, the indirect cost allocation, the reconciliation to the client's basis, the dates and the limitations.

Can a CPA rely on a cost segregation study?

Yes, where reliance is reasonable under Circular 230, which means the study has been read against the IRS guide's elements and reconciled to the client's records.

Who prepares Form 3115 for a look-back study?

The adviser, using the study's asset list and recomputation support, under the automatic change procedures.

What elections does the adviser make?

Bonus depreciation in or out by class, the transition election where applicable, section 179 where available, the de minimis safe harbor, and any partial disposition elections, all on the return.

How should the adviser document reliance?

With the study, the review checklist and findings, the reconciliation, the model and elections, practitioner correspondence and the engagement letter, kept in the file.

Sources