How to Read Your Closing Disclosure for Cost Segregation: Every Line That Matters
The Closing Disclosure is the first document I look at for every acquisition study. Here is exactly what matters for your depreciation.
Matthew Gigantelli
Lead Cost Seg Engineer · ASCSP M009-25
The Closing Disclosure is the first document I review for every acquisition study. It establishes three things that determine the entire study: your depreciable basis, the placed-in-service date, and the property address. Get any of these wrong and every number in the study is wrong. Yet most investors have never read their Closing Disclosure with depreciation in mind. This guide walks through every section of a standard ALTA Closing Disclosure and explains exactly what each line means for your cost segregation.
Page 1: The Three Critical Numbers
Sale Price
The starting point for your depreciable basis. This is the total consideration paid for the property. The sale price is NOT your depreciable basis — you must subtract land value and may add certain closing costs. But it is the anchor number from which everything flows.
Closing Date
Your placed-in-service date. Depreciation begins on this date. If you close on December 28, your first-year depreciation is for that tax year — even though you only owned the property for 3 days. This is why many investors time closings to maximize first-year deductions.
Property Address
Must match the cost segregation study exactly. Seems obvious, but I have seen studies rejected because the address on the report did not match the address on the closing disclosure (unit numbers, suite designations, street abbreviations).
Closing Costs That Add to Basis
| Closing Cost | Adds to Basis? | Treatment |
|---|---|---|
| Title insurance | Yes | Added to depreciable basis |
| Recording fees | Yes | Added to depreciable basis |
| Transfer taxes | Yes | Added to depreciable basis |
| Survey costs | Yes | Added to depreciable basis |
| Attorney fees (purchase-related) | Yes | Added to depreciable basis |
| Loan origination fees | No | Amortized over loan term |
| Prepaid interest | No | Deducted as interest expense |
| Property insurance | No | Deducted as operating expense |
| Property taxes (prorated) | No | Deducted as tax expense |
Determining Land Allocation
Land is not depreciable and must be subtracted from the purchase price. The land allocation typically comes from the county tax assessor's ratio, an independent appraisal, or comparable land sales. For most properties, land represents 15-25% of the purchase price. A higher land allocation reduces your depreciable basis and your cost segregation deductions. This is why getting the land allocation right matters — it affects every number downstream.
Worked Example: From Closing Disclosure to Depreciable Basis
Sample Closing Disclosure
Sale price (Page 1): $850,000
Closing date: June 15, 2026 (placed-in-service date)
Closing costs that add to basis:
- Title insurance: +$3,200
- Recording fees: +$450
- Transfer taxes: +$4,250
- Survey: +$800
- Attorney fees (purchase): +$2,100
Closing costs that do NOT add to basis:
- Loan origination (1%): $6,375 → amortized over loan term
- Prepaid interest: $1,890 → deducted as interest expense
- Insurance premium: $2,400 → deducted as operating expense
- Prorated property taxes: $3,100 → deducted as tax expense
Total cost basis: $850,000 + $10,800 = $860,800
Land allocation (18% from assessor): -$154,944
Depreciable basis: $705,856
With cost segregation (25% reclassified): $176,464 in Year 1 bonus depreciation → $65,292 tax savings at 37%
Without cost segregation: $705,856 ÷ 27.5 = $25,667/year → $9,497 tax savings
Frequently Asked Questions
What three numbers from my Closing Disclosure matter most for cost segregation?
Sale price (starting point for depreciable basis), closing date (your placed-in-service date for depreciation), and property address (must match the study exactly). The sale price minus land allocation, plus certain allowable closing costs, equals your depreciable basis.
Which closing costs can be added to my depreciable basis?
Title insurance, recording fees, transfer taxes, survey costs, and attorney fees related to the purchase generally add to basis. Loan origination fees, prepaid interest, and property insurance premiums do not — they are either amortized separately or deducted as expenses.
How is land value determined for cost segregation?
Land value is typically determined from the county tax assessor's allocation (land vs. improvements ratio), an independent appraisal, or comparable land sales. Land is not depreciable and must be subtracted from the purchase price. The land allocation directly affects the size of your cost segregation deductions — a 5% difference in land allocation on an $850K property changes your depreciable basis by $42,500.
What if I lost my Closing Disclosure?
Your title company retains copies for years. You can also request a copy from your lender or your real estate attorney. The cost segregation engineer needs the actual document — not a summary — because specific line items affect the basis calculation.
For a detailed walkthrough of reading closing disclosures and appraisals for cost segregation, see Overline's closing disclosure and appraisal reading guide.