Is a Site Visit Required for a Cost Segregation Study? While not always strictly required for simpler properties, a physical site visit is considered ideal and the most important part of a Cost Segregation study process because it allows engineers to thoroughly inspect and document all components for maximum accelerated depreciation. The site visit ensures the most comprehensive results and helps guarantee compliance with IRS guidelines, especially for larger or more complex properties.
A thorough inspection allows the engineer to document everything from structural components to shorter-lived assets like flooring, lighting, and landscaping, both inside and around the outside of the building. The more accurate the information collected, the greater the potential tax benefits. For situations where a site visit isn't feasible (e.g., sensitive situations or multiple tenants), high-quality photos, digital records, and other documentation can sometimes be used instead.
Site Visit for Cost Segregation: Key Facts
- Necessity: A site visit is ideal and the most important part of the process for optimal results and compliance.
- Purpose: Allows engineers to thoroughly inspect and document all components qualifying for accelerated depreciation (e.g., structural, flooring, lighting, landscaping).
- Benefit: More accurate information collected leads to greater potential tax benefits for you.
- Alternative: For simpler properties or sensitive situations, high-quality photos, digital records, and other documentation can sometimes be used.
- Compliance: A site visit usually gives the most comprehensive results and ensures compliance with IRS guidelines for complex properties.
Understanding the IRS Guidance
While the Internal Revenue Service (IRS) does not issue a mandate for an in-person visit, its Cost Segregation Audit Technique Guide (ATG), the manual used by agents, suggests conducting “field inspections.”
The purpose of the inspection is to:
- Document the physical details of the building and its assets.
- Identify the type of construction and materials used.
- Verify the existence and condition of assets, especially when documentation (like blueprints or invoices) is limited or unavailable.
For larger, more complex properties, or those undergoing significant renovations, a physical on-site cost segregation study is often considered the gold standard for providing the most audit-defensible results.
The Rise of Remote Cost Seg
Thanks to technology, many firms, including Engineered Tax Services, now offer highly accurate remote cost seg studies, especially for less complex or smaller commercial properties. These virtual methods utilize:
- High-resolution photos and video walkthroughs provided by the client or property manager.
- Digital documentation, including floor plans, appraisals, and construction documents.
- Advanced software and engineering analysis to classify assets without physically being on-site.
This approach offers the same tax-saving results as an in-person study but can significantly reduce the professional fees and turnaround time by eliminating travel expenses and scheduling complexities.
The Bottom Line for Compliance
A remote cost seg study is acceptable, provided the engineering firm can gather sufficient, high-quality documentation to support its conclusions. The critical element is the quality and accuracy of the engineering analysis and the final report, not merely the physical presence of the engineer.
Firms that specialize in this area know that the IRS prioritizes a detailed engineering-based methodology over simplified, arbitrary “rule-of-thumb” methods. Whether conducted on-site or through remote documentation, the study must be comprehensive and defensible.
When evaluating providers, ask them exactly how they perform their field inspection, whether it's a physical visit or a detailed virtual inspection, to ensure the final report meets the IRS's high standard for documentation and accuracy.
