§168
Internal Revenue Code section governing the Modified Accelerated Cost Recovery System (MACRS) — the framework defining recovery periods and depreciation methods for tangible property.
§469
Passive activity loss rules. Determines when rental losses (including those generated by cost segregation) can offset W-2 wages or other active income.
§1.263(a)
Treasury Regulation distinguishing capital expenditures from currently deductible repairs. Anchors the line between building structure and personal property.
Asset Class Life
The MACRS recovery period assigned to a category of property — 5, 7, 15, 27.5, or 39 years for the most common cases.
Audit Techniques Guide (ATG)
IRS-published reference examiners use during cost segregation audits. Names the six characteristics of a quality study.
Bonus Depreciation
A first-year deduction available on qualifying property. Phasing down through 2026 under current law.
Component Depreciation
The practice of depreciating identifiable parts of a building separately. Cost segregation is a controlled, documented form of this.
Cost Segregation Study
An engineering-based analysis that reclassifies portions of a building's basis into shorter-life property classes.
Defensibility
The property of a study that allows it to survive examination — methodology, documentation, and consistency with the regulations.
Engineering-Based Approach
A study methodology grounded in component identification from drawings or site evidence rather than allocation from purchase price.
Form 3115
Application for Change in Accounting Method. Required when a cost segregation study is performed on a property placed in service in a prior year.
Hospital Corp. of America
The 1997 Tax Court decision that established the modern framework for cost segregation by validating component classification.
Material Participation
A §469 standard for qualifying as actively involved in a rental — typically requiring 500+ hours, or other tests.
Placed in Service
The date a property becomes available for its intended use. Determines when depreciation begins.
Real Estate Professional Status (REPS)
A §469 carve-out allowing rental losses to offset active income for taxpayers spending more than half their working time and 750+ hours in real estate.
Reclassified Basis
The portion of a building's depreciable basis moved from 27.5- or 39-year property into shorter classes.
Recovery Period
The number of years over which the cost of a property is depreciated. Set by MACRS.
RSMeans
A widely used published cost data source. Often referenced for source costs in engineering-based studies.
Site Evidence
Photographs, take-offs, and other documentation collected at the property. Required for a workpaper file to be reproducible.
Take-Off
A measurement of materials or components from drawings or site — the input to component cost allocation.
Workpaper File
The collection of documentation behind a study. The unit examiners actually evaluate.
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