Should a named professional sign the cost segregation report?

Yes. A legitimate cost segregation study should have a named engineer, cost estimator, or qualified professional who takes personal responsibility for the classifications. If the answer is vague — 'our team of engineers' without names — that is a red flag. An individual should stand behind the work.

Is flat fee or percentage-of-savings pricing better for cost segregation?

Flat-fee pricing is generally preferable because it eliminates the incentive to inflate classifications. Percentage-of-savings fees (typically 15-25% of first-year savings) create a financial incentive for the provider to be more aggressive. That said, percentage pricing is not inherently dishonest — just be aware of the misaligned incentive and verify that reclassification percentages are within defensible ranges.

The Cost Segregation Provider Checklist: 12 Questions to Ask Before Hiring

Q: What is the most important question to ask a cost segregation provider?

Is the study engineering-based? The IRS Cost Segregation Audit Techniques Guide explicitly states that studies should be performed by individuals with engineering and construction expertise. If the provider cannot explain their engineering methodology, you are likely getting a desk study marketed as something more.

The cost segregation industry has a structural 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 completing hundreds of studies and reviewing competitor reports from investors who came to me after bad experiences, I built this 12-question checklist to help you evaluate any provider — including my own company.

The twelve questions

1. Is the study engineering-based?

This is the single most important question. The IRS ATG specifically states that studies should be performed by individuals with engineering and construction expertise. If the provider uses generic percentages rather than component-level analysis of your specific property, it is not engineering-based regardless of what they call it.

2. Does a named professional sign the report?

Ask specifically: who reviews the final report, what are their credentials, and will they defend the study if audited? An individual must stand behind the work.

3. Does the provider follow the IRS ATG's 13 principal elements?

The IRS Audit Techniques Guide identifies 13 principal elements of a quality study. Your provider should be able to explain how they address each one, from engineering methodology to property-specific documentation.

4. What documentation do they require from you?

A quality provider will ask for your closing disclosure, property photos or video, and any available construction documentation. A provider that only asks for your address and purchase price is likely running a template.

5. How do they handle the site inspection?

Either an on-site visit by a qualified professional, or a technology-enabled approach using owner-submitted photos, satellite imagery, and property records combined with engineering analysis. No inspection methodology at all is a disqualifier.

6. Is pricing flat-fee or percentage-based?

Flat-fee pricing removes the incentive to inflate classifications. Percentage-of-savings fees create a misaligned incentive. Know what you are paying for and why.

7. Is audit defense included?

A provider who stands behind their work should include audit defense. If they charge extra for it or do not offer it, ask why they are not confident in their own classifications.

8. Can they show you a sample report?

Review the quality before you buy. Look for property-specific photographs, individual component line items with CSI codes, RS Means pricing, and a clear methodology section. See our sample report walkthrough for comparison.

9. What reclassification percentage do they typically achieve?

Compare to benchmark data. A provider promising dramatically above-average results may be using aggressive classifications.

10. Do they handle look-back studies and Form 3115?

If your property was acquired in a prior year, you need a look-back study filed via Form 3115. Not all providers handle this correctly.

11. Will they communicate directly with your CPA?

The study is useless if your CPA cannot implement it correctly. A good provider will explain the results to your tax preparer and ensure proper filing.

12. What is the turnaround time?

If you need the study for the current tax year, delivery timing matters. Technology-enabled providers deliver in 1-3 weeks. Traditional firms take 6-12 weeks. Plan accordingly.

For a provider selection checklist and evaluation criteria, see Overline's provider selection checklist.