How CPAs Can Deliver Massive Client Value
The opportunity: Cost segregation and fixed asset reviews can deliver immediate tax savings of 2.5-10% of a building's cost.
The ROI for clients: $50K-$500K+ in first-year tax savings on a typical cost segregation study that costs $5K-$15K.
The benefit for you: Differentiate your practice, deepen client relationships, create recurring engagement opportunities.
This guide shows you how to identify opportunities, work with cost seg specialists, and deliver exceptional value to your clients.
Practitioner note (Sam Young, EA): I partner with engineering firms and CPA teams on fixed asset reviews, Form 3115s, and Rev. Proc. 2019‑33 implementations—this is the workflow we use.
Understanding the Fundamentals
What is Cost Segregation?
Cost segregation is a sophisticated tax planning strategy that reclassifies building components from lengthy depreciation schedules to much shorter recovery periods. Instead of depreciating commercial buildings over 39 years or residential rentals over 27.5 years, specific components can be segregated and depreciated over 5, 7, or 15 years.
Value Proposition: A properly executed cost segregation study can generate cash savings between 2.5 to 10 percent of the building's cost—one of the most valuable services CPAs can offer.
Real Client Impact Example
Client: Manufacturing company with new $2.5 million factory building
Traditional Approach: Depreciate entire building over 39 years = $64,103 annual deduction
Cost Segregation Result: $450,000 reclassified to 5-year property + bonus depreciation
First-Year Benefit: Additional $450,000 deduction = $166,500 tax savings (37% rate)
CPA Value: Immediate client relationship strengthening + recurring engagement opportunities
The Comprehensive Fixed Asset Review Advantage
A comprehensive fixed asset review takes cost segregation to the next level by evaluating a taxpayer's entire depreciation schedule to identify multiple opportunities for accelerated deductions.
For CPAs: This represents a significant practice differentiator—rather than providing basic compliance, you're delivering strategic tax optimization that directly impacts clients' cash flow and business success.
Cost Segregation Opportunities by Property Type
| Building Type | Segregated Components | Typical Reallocations |
|---|---|---|
| Apartment Buildings | Kitchen countertops, cabinetry, window blinds, flooring, parking lots, pools | 15-30% |
| Manufacturing | Process plumbing/electrical, ventilation, fire protection | 20-45% |
| Hotels | Decorative lighting, flooring, window treatments, kitchen equipment, millwork | 15-40% |
| Office Buildings | Network cabling, raised floors, IT HVAC, UPS systems | 10-25% |
| Restaurants | Kitchen cabinetry, exhaust hoods, decorative items, drive-through equipment | 20-40% |
| Retail Centers | Merchandise lighting, POS electrical, security cameras, removable flooring | 15-40% |
| Warehouses | Loading ramps, parking lots, rack fire protection, pylons | 10-20% |
Advanced Fixed Asset Review Opportunities
🔧 Individual Asset Review
Many individual assets are inappropriately depreciated as part of building structure when they should qualify for more rapid depreciation. This includes process-related plumbing, electrical, and ventilation systems that serve specific business operations.
📋 Capital to Expense Studies Under TPR
Tangible Property Regulations allow retroactive review of capitalized expenditures that actually qualify as repair/maintenance:
- Replacing roof membranes (not entire roofs)
- Resealing parking lots
- Replacing individual HVAC components
- Electrical system repairs
👻 Retirement Studies for "Ghost Assets"
Many taxpayers carry "ghost assets" on fixed asset schedules—assets removed, replaced, or abandoned but never properly disposed of. A retirement study identifies these assets, allowing immediate deduction of remaining undepreciated basis.
🏗️ Partial Dispositions
TPR allows immediate deduction of removed building components when making improvements. Write off undepreciated basis instantly.
Specialized Deductions and Credits
⚡ Section 179D Energy Deduction
Benefit: Up to $5.65 per square foot immediate deduction
Qualifying Systems: Efficient lighting, HVAC, hot water, building envelope
Advantage: Immediate deduction vs. 27.5/39-year depreciation
🏠 Section 45L Energy Credit
Benefit: $500 to $5,000 per qualifying residence
Qualifying Properties: Single family homes, apartments, condos, student housing
Requirement: New construction or substantial reconstruction
The Accounting Method Change Process
Understanding Form 3115
When implementing cost segregation or fixed asset review findings, taxpayers must file Form 3115, Application for Change in Accounting Method.
Function: Allows taxpayers to change accounting method with IRS consent and calculate required Section 481(a) adjustment.
Types:
- Automatic Consent: Most cost segregation changes qualify (Rev. Proc. 2019-33)
- Non-Automatic: Requires specific IRS approval (rare for cost seg)
The Section 481(a) Adjustment
The Section 481(a) adjustment represents the difference between depreciation claimed under the old method versus what should have been claimed under the new method.
Treatment:
- Generally taken entirely in year of change
- Prevents duplication or omission of income/deductions
- Can create substantial current-year deductions
Example: Building purchased in 2020, cost segregation performed in 2025. 481(a) adjustment captures missed depreciation from 2020-2024 as "catch-up" deduction in 2025.
CPA Implementation Strategies
Client Identification and Qualification
Ideal Candidates:
- Commercial property owners with buildings $500K+
- Recent property acquisitions
- Properties with substantial improvements
- Clients in high tax brackets
- Businesses with consistent profitability
Engagement Process
- Initial Assessment - Review fixed asset schedules
- Feasibility Analysis - Estimate potential benefits
- Professional Engagement - Partner with cost seg specialists
- Implementation - File Form 3115, amend if necessary
- Ongoing - Monitor for PAD opportunities
Revenue Procedure 2019-33: The Safe Harbor
Rev. Proc. 2019-33 provides automatic consent for many cost segregation method changes, streamlining the implementation process.
Key Benefits:
- Automatic approval (no IRS ruling required)
- Standardized procedures
- Clear guidelines for practitioners
- Reduces audit risk
Frequently Asked Questions
Q: What's the minimum building value for cost segregation to make sense?
A: Generally $500,000+, though properties as low as $250,000 can benefit if they have high segregation potential (restaurants, specialized facilities).
Q: Can cost segregation be done retroactively?
A: Yes! Revenue Procedure 2019-33 allows retroactive cost segregation via Form 3115. Capture missed depreciation from prior years through 481(a) adjustments.
Q: What's the typical ROI for clients?
A: 10-50x return in year one. Study costs typically $5K-$15K, generating $50K-$500K+ in first-year tax savings.
Q: Do I need to be an engineer to implement cost segregation?
A: No. CPAs partner with qualified cost segregation specialists who perform engineering analysis. CPA handles tax strategy and implementation.
Q: How do I avoid audit issues?
A: Use qualified engineers, maintain detailed documentation, follow Rev. Proc. 2019-33, cite legal precedents for classifications, avoid aggressive kitchen cabinet positions in residential.
Related Resources
- Comprehensive Cost Segregation Legal Guide
- Partial Asset Disposition Guide
- Business Tax Planning Strategies
- 10 Depreciation Secrets
Sources
- IRS Publication 946 — How to Depreciate Property: https://www.irs.gov/publications/p946
- IRS Cost Segregation Audit Techniques Guide: https://www.irs.gov/businesses/cost-segregation-audit-techniques-guide
- Form 3115 instructions — Change in Accounting Method: https://www.irs.gov/forms-pubs/about-form-3115
CPAs: Partner with qualified cost segregation specialists to deliver maximum value to your clients while maintaining professional standards and audit defensibility.