Cost segregation study software that holds the takeoff, the evidence and the 3115 on one file
A cost segregation study is the engineering review that splits the cost of a building into the parts that recover over 39 years and the parts that do not. IRS Publication 5653 lists 13 principal elements of a quality study, among them a reconciliation of total allocated costs to total actual costs and an identification of every item treated as section 1245 property. A study done after the return was filed is a change in accounting method and travels on Form 3115 with a section 481(a) adjustment. Neurobird keeps that file in one place.
Neurobird Cost Segregation Study in short
- Build the asset schedule from the takeoff so every unit cost traces back to a document
- Reconcile total allocated costs to total actual costs before the report is issued, not after
- Keep the legal analysis attached to each 1245 item instead of in a generic narrative section
- 39 years Recovery period for nonresidential real property under the general depreciation system, or 31.5 years if it was placed in service before May 13, 1993, and 40 years under the alternative depreciation system. IRS Publication 5653
- 27.5 years Recovery period for residential rental property under the general depreciation system. Under the alternative system it is 40 years, or 30 years if the property was placed in service after December 31, 2017. IRS Publication 5653
- Pricing runs 189 to 1490 US dollars per month across 3 tiers. Early access is free.
What cost segregation firms and tax advisors actually deal with
Why it stays broken
The study is engineering work priced as tax work. The people who can read a set of drawings and the people who can read Rev. Proc. 87-56 rarely sit at the same desk, so the takeoff, the legal analysis and the depreciation schedule live in three separate documents that only meet inside a PDF at the end. IRS Publication 5653 sets no prescribed format for the report and no prescribed qualification for the preparer, which leaves every firm to invent its own file and its own audit trail.
IRS Publication 5653 lists 13 principal elements of a quality cost segregation study, and a reconciliation of total allocated costs to total actual costs is one of them.
In 2006, A1 completes a cost segregation study on the building and its components and identifies items that cost a total of $1,500,000 as section 1245 property .
What the IRS guide says about cost segregation
The audit technique guide the examiner is reading, the two code sections that decide what is personal property, and the recovery periods those decisions land on.
Recovery period for nonresidential real property under the general depreciation system, or 31.5 years if it was placed in service before May 13, 1993, and 40 years under the alternative depreciation system.
IRS Publication 5653Recovery period for residential rental property under the general depreciation system. Under the alternative system it is 40 years, or 30 years if the property was placed in service after December 31, 2017.
IRS Publication 5653Principal elements the IRS lists for a quality study, including a common nomenclature, a standard numbering system, a reconciliation of allocated costs to actual costs and a listing of every section 1245 item.
IRS Publication 5653Methods the guide expects to recognise in a report: detailed engineering from actual cost records, detailed engineering cost estimate, survey or letter, residual estimation, sampling or modeling, and rule of thumb.
IRS Publication 5653The application a taxpayer files to change a depreciation method after the fact. The original attaches to the timely filed return and a duplicate copy goes to the IRS office in Ogden, Utah, and an amended return will not do instead.
IRS Publication 5653Share of gross rental income that must come from dwelling units before a building counts as residential rental property under section 168(e)(2)(A), which is what puts it on 27.5 years instead of 39.
26 U.S.C. 168Neurobird Cost Segregation Study Operations Platform
One record per property: the acquisition or construction cost, the takeoff behind every unit, the indirect cost allocation, the schedule split across 5, 7, 15, 27.5 and 39 year lives, and the method change paperwork if the property was placed in service in an earlier year.
- 1Build the asset schedule from the takeoff so every unit cost traces back to a document
- 2Reconcile total allocated costs to total actual costs before the report is issued, not after
- 3Keep the legal analysis attached to each 1245 item instead of in a generic narrative section
- 4Carry a look back study onto Form 3115 with the 481(a) adjustment the change actually needs
What changes with Neurobird Cost Segregation Study?
The same work, read left to right: how it runs today, and how it runs once the record is in one place.
| Today | With Neurobird Cost Segregation Study |
|---|---|
| The takeoff sits in a spreadsheet, the site photos sit on a phone, and the report gets rebuilt from memory when an examiner asks how a number was reached | Build the asset schedule from the takeoff so every unit cost traces back to a document |
| A look back study lands on a return as a claim instead of on the Form 3115 that a change in accounting method actually requires | Reconcile total allocated costs to total actual costs before the report is issued, not after |
| Nobody can tie the allocated costs back to the total actual cost, which is the first reconciliation an examiner asks to see | Keep the legal analysis attached to each 1245 item instead of in a generic narrative section |
Who is this for?
One statute, three very different files.
You do the study for someone else's return
Your report is the deliverable and the audit exposure. You need the takeoff, the unit costs and the legal analysis to travel together instead of being reassembled in Word.
You are the one filing it
You need the schedule in a form your depreciation software can take, and a look back study that arrives with its Form 3115 and its 481(a) adjustment already worked out.
You commission one per building
You buy a handful of studies a year across several entities. You need them stored somewhere you can find them in year six, when the examiner arrives and the preparer has moved on.
How does Neurobird Cost Segregation Study work?
Load the property
Purchase price or construction cost, the placed in service date, the drawings and the contractor pay applications, captured once so the study starts from records rather than from estimates.
Classify and price the units
Each unit of property gets a description, a unit cost, a source document and a recovery period, with the indirect cost treatment stated instead of buried in a spreadsheet formula.
Close the file
The reconciliation runs, the schedule of land, 1245 and 1250 property comes out as the final product, and a study on a prior year property carries its method change paperwork with it.
The study file, as your engineer would work it
Price a unit of property and watch the reconciliation and the schedule move with it.
| Requirement | Status | Next due | |
|---|---|---|---|
| PROP-4102, retail strip center, 39 year building basis loaded | current | in 42d | |
| UNIT-118, decorative lighting, 5 year, invoice attached | due soon | in 9d | |
| PROP-3980, prior year property, Form 3115 attached | current | in 120d | |
| UNIT-233, site paving and curbs, 15 year land improvement | overdue | 3d late | |
| PROP-3980, prior year property, Form 3115 attached | current | in 64d |
Tick a requirement to file evidence against it.
Cost segregation study software questions, answered
Key terms
- What is a cost segregation study?
- It is an engineering review that separates the cost of a building into land, section 1250 real property and section 1245 personal property, so the shorter lived items recover over 5, 7 or 15 years instead of the 39 years the building carries. IRS Publication 5653 is the guide an examiner uses to review one.
- What are the elements of a quality study?
- Publication 5653 lists 13 of them. Among the ones firms most often miss: a common nomenclature, a standard numbering system, a stated treatment of indirect costs, and a reconciliation of total allocated costs back to total actual costs.
Can a study be done on a building we bought years ago?
Yes, and that is where the paperwork changes. Reclassifying property already on the books is a change in accounting method, so it goes on Form 3115 with a section 481(a) adjustment rather than onto an amended return.
Does this file the return?
No. The schedule exports to whatever depreciation system you already run and the return is filed where it is filed today. This holds the study itself: the takeoff, the unit costs, the source documents and the reconciliation behind them.
How does it help in an examination?
Every unit cost points back to the document it came from, so the questions an examiner opens with, how the cost was determined and whether the allocation reconciles, have answers attached rather than reconstructed.
Why we are building this
We went looking for expensive work that still gets assembled by hand, and cost segregation kept coming up. The engineering is real, the tax analysis is real, and in most firms the two meet for the first time inside a PDF that nobody can take apart again three years later when an examiner asks how a unit cost was reached. That is a record problem, and record problems are what we build. The IRS guide we read while scoping this is linked above, so you can check our reading of it instead of taking our word for it. If we have the workflow wrong, tell us and we will fix it.
Where the requirement comes from
Primary sources, straight from the regulators.
- IRS Publication 5653, Cost Segregation Audit Technique Guide What the examiner reads first: the 13 elements, the six approaches, and the method change chapter.
- 26 U.S. Code 168, accelerated cost recovery system Class lives, the definitions of residential rental and nonresidential real property, and the ADS periods.
- 26 U.S. Code 1245, gain from dispositions of certain depreciable property The recapture side of every reclassification, which is the part a study rarely writes down.
- 26 U.S. Code 1250, gain from dispositions of certain depreciable realty What stays with the building when the personal property has been carved out of it.
- 26 CFR 1.446-1, general rule for methods of accounting Why reclassifying a prior year asset is a method change rather than a correction.
- IRS Audit Techniques Guides index The rest of the shelf, including the capitalization of tangible property guide the same examiner uses.
How much does Neurobird Cost Segregation Study cost?
Priced per practice because a study belongs to a property rather than to a seat. Properties, units of property and attached documents are unlimited on the upper tiers.
- Up to 25 studies a year
- Unit cost library
- Cost reconciliation
- Report export
- Unlimited studies
- Multi entity properties
- 3115 tracking
- Reviewer sign off
- Multiple offices
- Shared cost library
- Examination support pack
- Priority support
Get free early access
Early access means we load your unit cost library, your open properties and your current report format before you type anything, and the account stays free while we do it.
Straight answer on where this is: The software is in development. Nothing is purchasable today. Early access means you shape it and pay nothing while we build.
Prefer email? Write to office@neurobird.com and a person will reply. No autoresponder.