Cost Segregation Report: Basis Reconciliation Checklist
Practical decisions for business owners and real estate owners.
The decision
Before a cost segregation report reaches the tax return, its asset totals should reconcile to the property’s supported depreciable basis. A report-to-return reconciliation helps detect duplicated furniture, omitted improvements, incorrect land treatment and an unsupported catch-up adjustment.
Published · AE Tax Advisors Team
Three files should tell one numerical story
Place the closing and improvement records, the cost segregation report, and the tax depreciation schedule side by side. Identify the taxpayer, property address, scope, and tax year on each. A report for the acquisition alone may exclude later renovations; a revised report may include them. Resolve that scope before comparing totals. Otherwise a difference can be mistaken for an error or, worse, a duplicate cost can appear reasonable.
The IRS audit technique guide describes elements of a quality study, including methodology, supporting documentation, and reconciliation of costs. It is examiner guidance, not a binding legal determination or IRS approval of a provider. Use it as a review reference while the preparer evaluates the actual tax treatment.
Work through this hypothetical reconciliation
Suppose the supported acquisition cost is $1,100,000, of which $220,000 is land. There are $80,000 of additional capitalized improvements included in the study scope. The expected total basis covered by the depreciation analysis is $960,000. If the report lists $160,000 of shorter-lived assets and $800,000 of remaining building basis, it ties mathematically. That tie alone does not validate the classifications or establish the amount currently deductible.
Now suppose the owner separately purchased $25,000 of furniture and the preparer already put it on another asset schedule. If the report’s $960,000 includes that same furniture without an appropriate adjustment, the return could duplicate basis. Ask which invoices are included in each subtotal and assign each invoice to one schedule. Do not fix a discrepancy by changing the land allocation merely to make totals agree.
Review the asset-level handoff
- Reconcile acquisition costs, capitalized costs, and excluded land.
- Match property identifiers and entity ownership to the return.
- List the report’s asset classes, methods, conventions, and service dates.
- Flag furniture and equipment already depreciated separately.
- Separate additions from replaced or disposed components.
- Identify federal and state schedules that need different treatment.
- Retain a bridge from the old schedule to the proposed new schedule.
Download the report reconciliation checklist. It is a blank review aid, not a depreciation calculation or tax election. Assign an owner and an evidence reference to every unresolved line.
Lookback reports need another bridge
For property reported in earlier years, request a schedule explaining prior deductions and the proposed correction. Ask the preparer to identify the procedural route and reconcile the proposed adjustment to the historical returns. Do not subtract an informal estimate of past depreciation from a headline report total. The Form 3115 guide explains the separate accounting-method question.
Close the review with a written exception list
For each difference, write the amount, explanation, supporting file, responsible person, and resolution. A report can be complete while implementation questions remain open. Keep unresolved items visible instead of treating delivery of a PDF as completion of the return work. The final file should show what was accepted, what changed, and which version was implemented.
This checklist reviews a delivered report. The pre-study document checklist covers what to collect before the work begins. Keeping those two stages distinct reduces back-and-forth between the property owner, analyst, and return preparer.
Source and scope
IRS Publication 5653: Cost Segregation Audit Technique Guide. Source checked September 26, 2026. Examples are hypothetical. This guide is general education, not a conclusion about your return. Read our editorial policy.
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