Most Investors Choose the Wrong Cost Segregation Provider
The cost segregation industry has a problem: there is no standard certification, no licensing requirement, and no barrier to entry. Anyone can call themselves a cost segregation provider. Some deliver IRS-defensible engineering studies. Others deliver template-based reports that fail under scrutiny.
After delivering 1,000+ studies and reviewing competitor reports from investors who came to us after bad experiences, we built this checklist to help you evaluate any provider — including us.
Author's note (Sam Young, EA): I run Overline, a cost segregation company. This guide will tell you exactly what to look for, what to avoid, and when Overline is or is not the right fit. If another provider is better for your situation, this checklist will help you identify them.
The 10-Point Provider Evaluation Checklist
1. Is the Study Engineering-Based?
This is the single most important question. The IRS Cost Segregation Audit Techniques Guide (ATG) specifically states that a quality cost segregation study should be performed by individuals with engineering and construction expertise.
What "engineering-based" means:
- Component-level analysis of your specific property
- Asset classification using engineering principles (not templates)
- Allocation based on actual construction costs, not generic percentages
- A named engineer reviews or signs the report
What it does NOT mean:
- A CPA running software that applies industry averages to your property
- A template report with the same percentages for every SFR regardless of age, condition, or features
- A "study" generated in 10 minutes by entering your address into a website
| Study Type | Engineering-Based? | IRS Defensibility | Typical Cost |
|---|---|---|---|
| Full engineering study (on-site) | Yes | Highest | $5,000–$15,000+ |
| Modern engineering study (data-driven + optional site visit) | Yes | High | $499–$4,500 |
| CPA desk study | No | Moderate | $1,500–$4,000 |
| DIY software | No | Low | $99–$500 |
Bottom line: If the provider cannot explain their engineering methodology, you are likely getting a desk study marketed as something more.
2. Does a Named Professional Sign the Report?
A legitimate cost segregation study should have a named engineer, cost estimator, or qualified professional who takes responsibility for the classifications.
Ask specifically:
- Who reviews the final report?
- What are their credentials (PE, CPA, cost engineer)?
- Will they defend the study if audited?
If the answer is vague — "our team of engineers" without names — that is a flag. An individual should stand behind the work.
3. Does the Provider Follow the IRS Audit Techniques Guide?
The IRS ATG identifies 13 principal elements of a quality cost segregation study. Your provider should be able to explain how they address each one:
- Preparation by individuals with engineering and tax expertise
- Detailed description of the methodology
- Use of appropriate documentation (blueprints, specs, photos)
- Interviews with relevant parties (owner, contractor)
- Identification of all property components
- Determination of property types under IRC sections 1245 and 1250
- Use of appropriate tax law
- Determination of correct recovery periods (5, 7, 15, 27.5, 39 year)
- Proper documentation of unit costs
- Reconciliation to total cost basis
- Quality review procedures
- Qualifications of the study preparer
- Statement of assumptions and limiting conditions
You do not need to memorize this list. Simply ask: "Can you walk me through how your study addresses the 13 principal elements from the IRS ATG?" A qualified provider will know exactly what you are talking about.
4. What Does the Pricing Look Like?
Cost segregation pricing falls into three models. Each has tradeoffs:
| Pricing Model | How It Works | Pros | Cons |
|---|---|---|---|
| Flat fee | Fixed price based on property type and size | Predictable, no incentive to inflate | May feel expensive for smaller properties |
| Percentage of savings | Provider charges 10–25% of first-year tax savings | Low risk (you only pay if savings are found) | Incentivizes aggressive classifications that may not survive audit |
| Hybrid | Base fee + small success component | Balances both | More complex to evaluate |
The percentage model deserves extra scrutiny. A provider charging 20% of savings has a direct financial incentive to maximize the reclassification percentage — even if more conservative classifications would be more defensible. This does not mean all percentage-based providers are bad, but understand the incentive structure.
Typical cost ranges by property value:
| Property Value | Overline (Flat Fee) | Traditional Firm (Flat Fee) | Percentage-Based |
|---|---|---|---|
| $300K–$500K | $499–$1,200 | $3,000–$5,000 | $1,500–$4,000 |
| $500K–$1M | $800–$2,000 | $4,000–$8,000 | $3,000–$8,000 |
| $1M–$3M | $1,500–$3,500 | $6,000–$12,000 | $5,000–$15,000 |
| $3M–$10M | $2,500–$4,500 | $8,000–$15,000+ | $8,000–$25,000+ |
5. Does the Provider Explain When NOT to Do Cost Segregation?
This is the most reliable indicator of an honest provider.
A trustworthy provider will tell you upfront:
- When your property is too small to justify the study fee
- When passive activity rules will limit your ability to use the deductions
- When your hold period is too short
- When your tax bracket makes the savings marginal
A provider focused on sales will:
- Quote headline savings numbers without mentioning passive activity limitations
- Never mention depreciation recapture
- Pressure you to buy before running numbers
- Claim every property is a "great candidate"
At Overline, we turn away investors whose properties do not meet our internal threshold. We would rather lose a sale than deliver a study with marginal ROI. We have written extensively about when cost segregation is a bad idea for this reason.
6. Is Audit Defense Included?
A cost segregation study that cannot withstand IRS review is worthless. Ask every provider:
- Is audit defense included in the study fee?
- What does "audit defense" actually cover — phone support, written responses, representation?
- Have any of their studies been audited? What were the outcomes?
- Will the engineer who signed the report participate in the defense?
Overline includes lifetime IRS audit defense on every study. Not every provider does.
7. How Are Reclassification Percentages Determined?
If a provider quotes your reclassification percentage before seeing photos, blueprints, or property details, that number is an estimate (not a study result). Estimates are fine for screening, but the final study should reflect property-specific analysis.
Red flag: Identical reclassification percentages across different property types and ages. A 1960s brick duplex and a 2020 luxury STR should not produce the same component breakdown.
What to expect from property-specific analysis:
| Property Type | Typical Reclassification Range | Drivers |
|---|---|---|
| Single-family rental | 24%–32% | Age, condition, finishes, landscaping, site improvements |
| Small multifamily | 26%–34% | Unit count, common areas, mechanical systems |
| Short-term rental | 26%–35% | Furnishings (can be expensed separately), upgrades |
| Office | 28%–38% | Tenant improvements, specialty HVAC, security |
| Retail | 30%–40% | Signage, specialty lighting, decorative finishes |
| Restaurant | 35%–44% | Commercial kitchen equipment, ventilation, plumbing |
8. What Is the Turnaround Time?
Traditional engineering firms with mandatory on-site inspections take 6–12 weeks. Modern providers like Overline deliver in 1–3 weeks by streamlining data collection, though turnaround may be longer if a physical inspection is included. Neither timeline should be a dealbreaker, but understand what affects it:
- On-site inspection required? Adds 2–4 weeks for scheduling
- Blueprint analysis? Faster if you have original construction drawings
- Portfolio studies? Multiple properties can be batched for efficiency
If a provider promises a "full engineering study in 48 hours," question the methodology. Thorough analysis takes time.
9. Does the Provider Integrate with Tax Filing?
Your CPA needs a report they can use directly. Ask:
- What format is the final deliverable? (PDF report + detailed asset schedule)
- Is the depreciation schedule broken down by asset class and recovery period?
- Can the report be imported into tax preparation software?
- Will the provider coordinate directly with your CPA if questions arise?
A professional study includes a detailed depreciation schedule that maps every reclassified component to its MACRS recovery period (5-year, 7-year, 15-year, or 27.5/39-year). If the deliverable is a one-page summary with a single reclassification number, it is not a complete study.
10. What Do Other Investors Say?
Check:
- Google reviews
- BiggerPockets forums (search for the provider name)
- Reddit threads (r/realestateinvesting, r/tax)
- Ask your CPA if they have worked with the provider before
Be cautious of providers with exclusively 5-star reviews and no critical feedback. Real businesses serving thousands of clients will have some mixed reviews. What matters is how they respond to criticism and whether the positive reviews mention specific outcomes.
The Decision Framework: Which Provider Type Fits You?
Choose Overline or Similar Modern Engineering Providers If:
- Your property value is $300K–$10M
- You want flat-fee pricing with no percentage of savings
- You need a study in 1–3 weeks (not 6–12 weeks)
- You are a W-2 investor, STR operator, or small landlord
- You want engineering-based methodology at 50% of traditional pricing
- You need audit defense included
- You want the option of a physical inspection without paying $10,000+ for it
Choose a Traditional Engineering Firm If:
- Your property value exceeds $10M
- The property is highly specialized (hospital, manufacturing, data center)
- Your lender or institutional partner requires a specific report format
- Budget is not a primary constraint
Choose a CPA Desk Study If:
- You only need a rough estimate for planning purposes
- You understand it may not be fully defensible in an audit
- You plan to follow up with a full engineering study later
Avoid DIY Cost Segregation Software If:
- You plan to claim the deductions on your tax return
- You need IRS-defensible classifications
- You do not have engineering or construction expertise
- The "savings" are the only number you see (no methodology documentation)
DIY tools can be useful for screening whether cost segregation is worth pursuing, but they should not replace a professional study.
Red Flags: Walk Away If You See These
- No named engineer or qualified professional on the report — The IRS ATG expects engineering expertise
- Guaranteed reclassification percentages before reviewing the property — Percentages should be the output of analysis, not a marketing promise
- Pricing based solely on percentage of savings with no cap — Incentivizes aggressive classifications
- No mention of depreciation recapture in the consultation — A sign they are focused on selling, not advising
- Identical reports for different property types — Template-based, not property-specific
- No audit defense included — They do not stand behind their work
- Pressure to sign immediately — Legitimate providers let you evaluate at your own pace
- Claims that "every property qualifies" — Not true. Some properties genuinely do not benefit.
- Study cost under $300 for a "full engineering study" — Engineering analysis cannot be done at that price point
- No explanation of passive activity rules for W-2 earners — They are not assessing whether you can actually use the deductions
Frequently Asked Questions
Q: How much does a cost segregation study cost? A: Costs vary by provider type and property size. Modern engineering providers like Overline charge $499–$4,500 (flat fee). Traditional engineering firms charge $5,000–$15,000+. CPA desk studies run $1,500–$4,000. DIY software costs $99–$500 but is not audit-defensible. The key metric is ROI, not study cost — a $2,000 study that generates $50,000 in tax savings is a 25x return.
Q: What is the difference between an engineering-based study and a desk study? A: An engineering-based study involves component-level analysis by professionals with construction and engineering expertise, following the IRS Audit Techniques Guide methodology. A desk study applies industry-average percentages without property-specific engineering analysis. Engineering studies are more defensible in an IRS audit. The IRS ATG specifically references the need for engineering expertise in cost segregation analysis.
Q: Can I do cost segregation myself? A: Technically yes, but it is not recommended. The IRS expects engineering methodology, proper documentation, and defensible classifications. Self-prepared studies without engineering expertise are significantly more likely to be adjusted or disallowed in an audit. DIY software can help you estimate potential savings, but should not replace a professional study for tax filing purposes.
Q: How do I know if cost segregation is worth it for my property? A: Use this quick screen: If your depreciable basis (purchase price minus land value) exceeds $300K and your combined tax rate exceeds 30%, cost segregation is likely worth evaluating. Run the free calculator for a property-specific estimate. For a detailed decision framework, see Is Cost Segregation Worth It?.
Q: What should I do if my current cost segregation study seems low quality? A: Request a copy of the full report and check: Is a named engineer listed? Does it reference the IRS ATG methodology? Are the asset classifications property-specific or template-based? If the study is deficient, you can commission a new study from a qualified provider. The new study supersedes the old one for tax filing purposes.
Q: Is Overline the right choice for every property? A: No. Overline is best suited for properties valued between $300K and $10M — single-family rentals, small multifamily, STRs, office, retail, and similar property types. Physical inspections are available for properties that need them. For highly specialized properties over $10M (hospitals, data centers, manufacturing facilities), a traditional engineering firm with deep domain-specific expertise may be more appropriate. We will tell you if your property falls outside our ideal range.
Continue Reading
- Why Cost Segregation Is a Bad Idea (Sometimes) — The 7 situations where cost seg does not make sense
- Is Cost Segregation Worth It? — Data-driven decision framework based on 1,000+ studies
- Why Our Studies Cost 50% Less — How modern methodology reduces costs
- Cost Segregation Audit Risk — What actually triggers IRS scrutiny
- Cost Segregation for W-2 Earners — How to unlock deductions with REPS or STR
Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or financial advice. The evaluation criteria described here reflect general best practices and should be adapted to your specific circumstances. Consult qualified tax and legal professionals regarding your situation.