# 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.

- URL: https://neurobird.com/costsegregation/
- Product: Neurobird Cost Segregation Study Operations Platform
- Niche: cost segregation study
- Buyer: cost segregation firms and tax advisors
- Status: in development, open for early access
- Updated: 2026-08-22

## What Neurobird Cost Segregation Study does

- 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
- Carry a look back study onto Form 3115 with the 481(a) adjustment the change actually needs

## How it works

1. **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.
2. **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.
3. **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.

## From the source material

> 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 .

Source: 26 CFR 1.446-1, general rule for methods of accounting, https://www.law.cornell.edu/cfr/text/26/1.446-1

## Industry context

- **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. (source: IRS Publication 5653, https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- **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. (source: IRS Publication 5653, https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- **13 elements** Principal 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. (source: IRS Publication 5653, https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- **6 approaches** Methods 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. (source: IRS Publication 5653, https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- **3115** The 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. (source: IRS Publication 5653, https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- **80 percent** Share 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. (source: 26 U.S.C. 168, https://www.law.cornell.edu/uscode/text/26/168)

## Pricing

- Single preparer: $189 per month
- Firm: $595 per month
- National practice: $1,490 per month

## Questions

### 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.

## Sources

- [IRS Publication 5653, Cost Segregation Audit Technique Guide](https://www.irs.gov/pub/irs-pdf/p5653.pdf)
- [26 U.S. Code 168, accelerated cost recovery system](https://www.law.cornell.edu/uscode/text/26/168)
- [26 U.S. Code 1245, gain from dispositions of certain depreciable property](https://www.law.cornell.edu/uscode/text/26/1245)
- [26 U.S. Code 1250, gain from dispositions of certain depreciable realty](https://www.law.cornell.edu/uscode/text/26/1250)
- [26 CFR 1.446-1, general rule for methods of accounting](https://www.law.cornell.edu/cfr/text/26/1.446-1)
- [IRS Audit Techniques Guides index](https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs)

## Contact

- office@neurobird.com
- https://neurobird.com/