In today’s competitive real estate and construction landscape, maximizing tax savings is more important than ever. Two of the most effective tools available to property owners, investors, architects, and builders are Cost Segregation Studies and the Section 179D Energy-Efficient Commercial Buildings Deduction. When applied correctly, these strategies can generate substantial federal tax deductions, improve cash flow, and increase return on investment.

However, the key to unlocking these benefits lies in choosing the right service provider. With numerous firms claiming to offer tax-saving solutions, selecting a qualified, experienced, and reliable partner is essential to ensure compliance with IRS regulations and to fully realize your potential savings.

In this blog, we’ll walk you through the most important factors to consider when hiring a cost segregation and Section 179D service provider. Whether you’re a first-time property buyer or a seasoned real estate investor, this guide will help you make an informed, confident decision.

Understanding the Services: Cost Segregation vs. Section 179D

Before selecting the right provider, it’s important to clearly understand what each of these tax strategies offers and how they differ. Though often related, Cost Segregation and Section 179D serve distinct purposes and apply to different aspects of a building’s structure and use.

What is Cost Segregation?

Cost segregation is a strategic tax planning tool that enables commercial property owners to accelerate depreciation on their buildings. Instead of depreciating the entire property over the traditional 27.5 or 39 years, a cost segregation study breaks down the building into components (like lighting, flooring, and mechanical systems) that can be depreciated over 5, 7, or 15 years.

Key Benefits:

• Accelerates tax deductions in the early years of ownership
• Improves cash flow
• Increases after-tax returns on real estate investments

This study is most beneficial for buildings purchased, constructed, or renovated after 1987 and costing at least $500,000.

What is Section 179D?

The Section 179D tax deduction is specifically designed to reward energy efficiency. It provides a deduction of up to $5.00 per square foot (as of 2023, adjusted annually) for commercial building owners or designers who install energy-efficient systems in lighting, HVAC, or the building envelope.

Who Can Claim It?

• Commercial building owners who make energy-efficient improvements
• Architects, engineers, and design-build contractors for public buildings (schools, government facilities)

Requirements include:

• Energy modeling and certification by a qualified third party
• Compliance with IRS and Department of Energy standards

How They Work Together

While cost segregation focuses on accelerated depreciation, Section 179D rewards energy efficiency. Together, they can create a powerful tax strategy for maximizing deductions—especially during property acquisition, construction, or renovation.

Understanding both services is essential when evaluating a provider. The best firms offer expertise in both areas and can advise on how to coordinate the timing and documentation to maximize the combined benefit.

Experience and Industry Expertise

When it comes to cost segregation and Section 179D studies, experience matters. These tax strategies require a deep understanding of engineering, tax law, and construction — and only a provider with proven expertise can deliver accurate results that hold up under IRS scrutiny.

Why Experience Counts?

An inexperienced firm may overlook key building components, misclassify assets, or fail to meet IRS documentation standards — leading to lost tax savings or potential audit risks. A well-established provider knows:

• How to properly identify and reclassify assets for maximum depreciation
• What energy systems qualify for Section 179D deductions
• How to ensure that studies meet current tax code and IRS guidelines

Look for a firm that has conducted hundreds (or thousands) of successful studies across different property types and regions.

Industry-Specific Knowledge

The complexity of these studies can vary greatly depending on the type of property — from office buildings and warehouses to hotels, hospitals, and government facilities. The right provider should:

• Understand industry-specific construction methods and systems
• Be familiar with the types of assets commonly found in your sector
• Tailor their approach to your specific building use and occupancy

Questions to Ask

Before hiring a provider, consider asking:

• How long have you been performing cost segregation and 179D studies?
• Do you specialize in certain property types or industries?
• Can you share examples or case studies from projects similar to mine?

The answers will help you gauge whether the firm has the hands-on expertise to maximize your financial benefits and ensure full compliance.

Credentials and Team Qualifications

A high-quality cost segregation or Section 179D study is only as strong as the professionals behind it. To ensure both accuracy and compliance with IRS standards, it’s essential to choose a provider with a qualified, multidisciplinary team. The right credentials not only speak to expertise but also build trust in the provider’s ability to deliver defendable results.

Key Professionals Involved

A reputable provider should have a team that includes:

• Licensed Engineers – to perform detailed building assessments and allocate assets appropriately
• Tax Professionals or CPAs – to ensure the study aligns with current tax regulations
• Energy Modelers or LEED Professionals – for Section 179D certification and compliance with energy efficiency standards
• Project Managers – to coordinate the process and maintain clear communication throughout the engagement

Certifications and Affiliations to Look For

• Professional Engineer (PE) license
• Certified Public Accountant (CPA) designation
• Affiliations with recognized industry groups such as:
  • American Society of Cost Segregation Professionals (ASCSP)
  • American Council of Engineering Companies (ACEC)
  • U.S. Green Building Council (USGBC) for energy-related projects

These designations reflect a firm’s commitment to professionalism, ethics, and ongoing education.

Why This Matters

IRS audits related to cost segregation or 179D claims often scrutinize the qualifications of the team who prepared the study. Hiring a provider without the appropriate credentials may result in:

• Disallowed deductions
• Fines or penalties
• Delays in tax filing or refunds

A properly credentialed team not only reduces risk but also ensures the maximum legal benefit from your investment.

IRS Audit Support and Defensibility

One of the most important factors to consider when choosing a cost segregation and Section 179D service provider is their ability to offer reliable IRS audit support. While these studies can yield substantial tax savings, they also carry the potential for IRS scrutiny. If your deductions are ever questioned, the strength of the provider’s report—and their willingness to stand behind it—will be crucial.

A reputable provider will have experience working with auditors and should be prepared to explain and defend the methodology, classifications, and calculations used in the study. They should also be ready to provide detailed documentation and be available to collaborate with your CPA or tax attorney. This kind of audit support gives you peace of mind, knowing that your study can hold up under examination.

When evaluating providers, look for those who offer a formal audit defense policy and access to the professionals who prepared your report, such as licensed engineers and tax experts. Top-tier firms often include audit support at no extra cost, demonstrating confidence in the quality and accuracy of their work.

Strong documentation is key to audit defensibility. An IRS-compliant report should include clearly outlined asset reclassifications, supporting photos and calculations, references to tax code provisions, and certification from qualified professionals. This transparency and thoroughness not only support your tax filing but also build a strong foundation in case of future inquiries.

Ultimately, selecting a provider who stands behind their work ensures that you’re not just maximizing your tax benefits—but also protecting them. It’s an essential element of a sound financial strategy when leveraging cost segregation or Section 179D deductions.

Cost Structure and ROI Evaluation

When evaluating service providers, understanding the cost structure and potential return on investment (ROI) is crucial. Here are the key aspects to consider:

Pricing Models:

• Flat Fees: Most providers charge a flat fee based on property size, complexity, and the scope of the study.
• Contingency Fees: Some providers work on a contingency fee basis, where the fee is a percentage of the tax savings generated by the study.
• Hourly Rates: In certain cases, providers may charge by the hour, especially for smaller or less complex projects.

Cost vs. Return on Investment:

• Tax Savings: The cost of a study should be viewed as an investment in substantial tax savings. In many cases, the deductions from cost segregation and Section 179D can far exceed the cost of the study itself.
• Potential ROI: A good cost segregation study can produce ROI multiples of the initial investment—sometimes yielding tax savings many times greater than the fees.
• Value over Time: Since cost segregation accelerates depreciation, it creates immediate tax relief and enhances cash flow. The upfront cost should be justified by the long-term savings.

Upfront Pricing and Transparency:

• Reputable providers will offer clear, upfront pricing or an estimated quote based on your property’s specifics.
• They should also provide a preliminary ROI estimate so you can evaluate the potential benefits before committing.

Avoiding the Cheapest Option:

• While cost is important, opting for the cheapest provider might not always be the best choice. Ensure that the provider has the necessary experience, qualifications, and audit support to protect your investment and maximize savings.

Consider the Full Value:

• The overall value of the study—considering accuracy, expertise, and audit defense—is often more important than the initial cost.

Tax savings and long-term financial benefits should be the primary focus.

Final Tips for Choosing the Right Partner

Selecting the right cost segregation and Section 179D service provider is a critical decision for maximizing your tax benefits. Here are some final tips to ensure you make the best choice:

Look for a Proven Track Record:

• Choose a provider with experience and a proven track record of successful studies across various property types.
• Ask for case studies or references from similar projects to gauge their capabilities.

Check for Proper Qualifications and Credentials:

• Ensure the provider has a team of qualified professionals, such as licensed engineers, CPAs, and energy modelers.
• Verify their affiliations with recognized industry organizations like the ASCSP or USGBC.

Evaluate Methodology and Transparency:

• The provider should follow an engineering-based approach and provide a clear, detailed report.
• Ensure the methodology is transparent, with adequate supporting documentation to stand up to IRS scrutiny.

Consider Audit Support:

• Choose a provider that offers audit defense or has experience handling IRS inquiries.
• A strong provider will stand behind their work and offer support if your study is ever questioned by the IRS.

Understand the Pricing Structure:

• Evaluate the provider’s pricing model and make sure you understand the full cost.
• Consider the potential ROI over the cost of the study and avoid choosing solely based on price.

Assess Communication and Customer Service:

• Ensure the provider has a responsive and knowledgeable team that communicates well and keeps you informed throughout the process.
• A good partner will be proactive in answering your questions and guiding you through the study.

Trust Your Instincts:

• Finally, trust your instincts when selecting a partner. If a provider is open, knowledgeable, and confident in their services, you’re likely in good hands.