Cost Segregation Studies Under Fire? Here's What Changed

How the IRS Is Using AI to Audit Cost Segregation Studies

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Is the IRS using artificial intelligence to audit cost segregation studies and real estate investors? Toby Mathis sits down with Chris Streit of CSA Partners to explain how AI is changing IRS audits, why cost segregation studies are receiving increased scrutiny, and what real estate investors should know before claiming large bonus depreciation deductions.

If you've already completed a cost segregation study—or you're considering one—understanding what the IRS looks for is increasingly important. This discussion covers how AI may help the IRS identify potential audit targets, what documentation auditors may request, and why some low-cost cost segregation studies may not withstand IRS scrutiny.

You'll also learn about common cost segregation mistakes that can increase audit risk, how to evaluate the quality of an existing study, and what you can do if you're concerned about a cost segregation report you've already received.

Learn more about CSA Partners 👉 https://csap.com/

How Cost Segregation Creates Large Real Estate Tax Deductions

Cost segregation can allow real estate investors to accelerate depreciation by identifying building components that qualify for shorter depreciation schedules. When combined with bonus depreciation, a cost segregation study can potentially create significant upfront tax deductions.

However, large deductions can also attract additional scrutiny. Investors should understand how their study was prepared, whether the classifications are properly supported, and what documentation is available if the IRS questions the deduction.

Why the IRS Is Increasing Scrutiny of Cost Segregation Studies

Cost segregation has become increasingly popular among real estate investors looking to maximize depreciation deductions. But not every cost segregation report is prepared to the same standard.

Toby and Chris discuss why the IRS may scrutinize aggressive depreciation claims and what separates a well-supported cost segregation study from one that could create problems during an examination.

The goal shouldn't simply be to generate the biggest tax deduction possible. The deduction should also be supported by a properly prepared and defensible cost segregation study.

Questions to Ask Before Hiring a Cost Segregation Firm

Before moving forward with a provider, ask questions about its experience, methodology, documentation, and support.

Understanding exactly what you're paying for can help you compare providers based on the quality of their work rather than simply choosing the cheapest cost segregation study or the company promising the largest deduction.

Get a Free Cost Segregation Benefit Analysis

Not sure whether cost segregation makes sense for your property?

Request a FREE Cost Segregation Benefit Analysis 👉 https://aba.link/154828

A benefit analysis can help you better understand the potential tax savings before deciding whether to move forward with a full cost segregation study.

Watch Next: Learn More About Cost Segregation

How To Do A Cost Segregation Study: When It Saves You Money And When It Doesn’t

Watch here 👉 https://youtu.be/beMOZDrXOJ8

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Chapters

0:00 – Intro 2:12 – How Cost Segregation Creates Large Tax Deductions 3:48 – Why the IRS Is Cracking Down 4:11 – The AI Technology the IRS Is Using 5:40 – How AI Flags Tax Returns for Audit 7:20 – How Often Are Cost Segregation Studies Audited? 8:11 – What IRS Auditors Ask For First 9:33 – The Risk of Cheap Cost Segregation Studies 10:28 – Can You Fix a Bad Cost Segregation S