METHODOLOGY
How we produce a study.
In seven steps.
is rule-based engineering. The IRS-blessed methodology has been stable for decades, grounded in the IRS that examiners use to evaluate studies. CostSegLogic runs the same seven steps a Big 4 engineer would — faster, with citations on every line.
AN INTERVIEW, NOT A FORM
We ask what we need. Nothing more.
Most cost-seg intake is fifty fields and a document checklist. We replaced it with a guided interview that adapts to your property and skips what doesn’t apply. Smart defaults from public assessor data fill in what they can. Ten minutes, on average.
USE OUR DEFAULTS, OR REFINE THEM
Like taking the standard deduction or itemizing.
We start every study with industry-grade estimates and parameters — the defaults a Big 4 engineer would use as a starting point. Take them as-is and you have a complete study quickly. Override any input with your own numbers when you have them. The output is a real, defensible cost-seg study either way. Not an estimate. Not a calculator.
Step 1
Property profile interview
Owner type, placed-in-service date, basis, property type, and use case (STR vs LTR vs commercial). The interview adapts in real time — STR owners answer different qualifying questions than LTR owners with REPS, and the question tree is shaped by what the engine actually needs to classify the property correctly.
Step 2
HUD-1 / settlement-statement parsing
Closing-statement basis is allocated between land (non-depreciable), building (27.5 or 39 years), and improvements. We pull line items from the HUD-1 you upload and reconcile against the property tax assessor card if you provide one. Owners often have $5K–$30K of depreciable basis hiding in closing costs that the IRS treats as part of the building.
Step 3
Asset classification
Every component is mapped to a 5/7/15/27.5/39-year MACRS class using the IRS Cost Segregation Audit Techniques Guide rule book. The §1245/§1250 distinction is logged for every line so the recapture schedule can split correctly later. Each classification cites its IRS code section and ATG paragraph.
Step 4
MACRS depreciation engine
Year-by-year depreciation is calculated using the right convention — half-year for personal property, mid-quarter when the 40% rule trips, mid-month for §1250 real property. Bonus depreciation rate is applied per OBBBA placed-in-service date. The engine handles property-tax mid-year acquisitions, partial-year disposals, and §168(k) elections automatically.
Step 5
State conformity matrix
Every state treats federal bonus depreciation differently — some fully conform, some decouple, some have addbacks that change the picture year-by-year. CostSegLogic's 50-state conformity matrix applies the right state treatment to your schedules so you see the full tax picture, not just the federal half.
Step 6
Recapture schedule
When you sell, accelerated depreciation comes back as ordinary-income recapture (up to 25% on §1250, marginal rate on §1245). The recapture schedule shows the year-by-year tradeoff — sell in year 3, year 5, year 10 — so you can run sell-vs-hold math before deciding. Most firms hide the recapture math; we put it on the front of every study.
Step 7
Form 3115 generation
If the property has been on a prior return, Form 3115 (Change in Accounting Method) with the §481(a) catch-up adjustment is generated automatically. Drafted, election text included, signature-ready for your CPA. No amended return required — the catch-up lands as a single adjustment on the current return.
RECAPTURE, IN DETAIL
vs , plus state-level treatment.
Cost segregation accelerates deductions today and pulls forward to disposition. The recapture math splits into two distinct buckets, and most firms publish neither. Below is how a CostSegLogic study presents both, plus the state-level interaction that compounds the math.
§1245 — PERSONAL PROPERTY
Ordinary-income recapture.
Reclassified personal property (5-, 7-, 15-yr classes — appliances, carpet, fencing, landscaping, specialty wiring) recaptures at your ordinary marginal rate up to the cumulative depreciation taken. The §1245 portion is the piece that cost seg created; that’s the trade you make for the time-value-of-money benefit.
Authority: IRC §1245; Treas. Reg. §1.1245-1.
§1250 — REAL PROPERTY
Unrecaptured gain at 25% federal cap.
The 27.5-yr / 39-yr building portion recaptures as “unrecaptured §1250 gain,” taxed at a max federal rate of 25% on the depreciation taken. This applies to standard MACRS depreciation whether or not you ran a cost-seg study — the §1250 number doesn’t grow when you reclassify; the §1245 number does.
Authority: IRC §1250(a); §1(h)(1)(E) (max-rate cap).
STATE-LEVEL INTERACTION
The state piece that compounds it.
Every state with an income tax adds its own recapture treatment on top of the federal math. States that decouple from also typically decouple recapture treatment — the addback recovery you took as a deduction earlier comes back as state-level recapture later. A complete recapture schedule shows both layers. Federal-only recapture math misses 30–60% of the disposition exposure in high-tax decoupled states (CA, NJ, PA, MA, NY).
50-STATE CONFORMITY
How each state treats federal bonus depreciation.
Most cost-seg providers ship a federal-only study. We ship your state’s actual situation in every paid report. The matrix below summarizes how every U.S. state treats §168(k) bonus depreciation as of the most recent legislative session — full conformity, partial addback, complete decoupling, or no state-level income tax at all.
View all 50 states50 entriesView
| State | Status | Note |
|---|---|---|
| ALAlabama | Full conformity | — |
| AKAlaska | No state income tax | No personal income tax |
| AZArizona | Partial / addback | Addback + spread |
| ARArkansas | Decoupled | — |
| CACalifornia | Decoupled | Full decouple from §168(k) |
| COColorado | Full conformity | — |
| CTConnecticut | Partial / addback | Addback + 7-yr recovery |
| DEDelaware | Full conformity | — |
| FLFlorida | No state income tax | No personal income tax |
| GAGeorgia | Decoupled | — |
| HIHawaii | Decoupled | — |
| IDIdaho | Partial / addback | Conforms with modifications |
| ILIllinois | Partial / addback | Addback + spread |
| INIndiana | Partial / addback | Addback + spread |
| IAIowa | Decoupled | Decoupled since 2002 |
| KSKansas | Full conformity | — |
| KYKentucky | Decoupled | — |
| LALouisiana | Full conformity | — |
| MEMaine | Partial / addback | Capital investment credit |
| MDMaryland | Decoupled | Full decouple |
| MAMassachusetts | Decoupled | — |
| MIMichigan | Full conformity | — |
| MNMinnesota | Partial / addback | 80% addback, 5-yr recovery |
| MSMississippi | Decoupled | — |
| MOMissouri | Full conformity | — |
| MTMontana | Partial / addback | — |
| NENebraska | Full conformity | — |
| NVNevada | No state income tax | No personal income tax |
| NHNew Hampshire | Decoupled | Business profits tax decoupled |
| NJNew Jersey | Decoupled | Full decouple from §168(k) |
| NMNew Mexico | Full conformity | — |
| NYNew York | Partial / addback | Addback + recovery |
| NCNorth Carolina | Partial / addback | 85% addback over 5 yrs |
| NDNorth Dakota | Full conformity | — |
| OHOhio | Partial / addback | Addback + 5-yr / 6-yr recovery |
| OKOklahoma | Full conformity | — |
| OROregon | Partial / addback | Tied to federal as of 12/31 prior yr |
| PAPennsylvania | Decoupled | Full decouple from §168(k) |
| RIRhode Island | Decoupled | — |
| SCSouth Carolina | Decoupled | — |
| SDSouth Dakota | No state income tax | No personal income tax |
| TNTennessee | No state income tax | No earned-income tax |
| TXTexas | No state income tax | No personal income tax |
| UTUtah | Full conformity | — |
| VTVermont | Partial / addback | — |
| VAVirginia | Partial / addback | Addback + spread |
| WAWashington | No state income tax | No personal income tax |
| WVWest Virginia | Full conformity | — |
| WIWisconsin | Partial / addback | — |
| WYWyoming | No state income tax | No personal income tax |
Conformity status reflects current §168(k) addback rules. Each state’s actual recognition factor, addback recovery curve, and marginal-rate math live in your paid study — the matrix above is a summary, not a substitute. Need the recapture-only math for an existing study? Recapture calculator → $99.
READY TO RUN A STUDY?
Free snapshot. No card. Property-specific math.
The interview takes about 10 minutes. The first-year deduction estimate is yours the moment you finish, with a one-page PDF you can share with your CPA. Upgrade to the $495 Cost Segregation Report or $1,199 CPA-Verified only if the snapshot tells you the deduction is worth running.