Acquisition Studies
When you buy an existing building, construction records are usually unavailable, so a study relies on inspection, drawings, and documented cost estimates reconciled to the purchase price. Land is valued first. Used property can still qualify for bonus depreciation if the acquisition tests are met.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Acquisition studies usually use the detailed engineering cost-estimate approach.
- Land is valued first, and estimates of the improvements should approximate the price less land.
- Used property can qualify for bonus depreciation if acquisition requirements are met.
- A uniform step-up that forces estimates to the price is not an acceptable method in the audit guide.
- The guide says used-property studies should be performed by qualified appraisers, citing AmeriSouth.
For a purchased building, the owner rarely has the original contractor's cost records. The IRS audit guide describes the detailed engineering cost-estimate approach for this situation: the same steps as a cost-records study, but with costs estimated from contractors or reliable published cost sources, cited to the source and applied consistently.
The guide recommends a field inspection for all quality studies and lists the purchase agreement, appraisals, and available drawings as key documents for acquired property.
Replacement cost new less depreciation is the estimating frame. The estimator prices what it would cost to build the observed improvements today, then reduces that figure for age and obsolescence. The result should come near the purchase price minus land.
Used property is not barred from bonus depreciation. The taxpayer must not have used the property before the acquisition, and the purchase must meet the related-party and basis rules in §168(k). As of October 16, 2026, qualified property acquired after January 19, 2025 is eligible for 100%.
AmeriSouth is the cautionary residential acquisition case. A large apartment study that treated too many interior items as short-lived property was largely rejected. Educational information, not tax advice.
Acquisition studies fail for two different reasons: the class is wrong on the facts, or the dollars are wrong because estimates were forced to the price. Fixing one and not the other still leaves a file an examiner cannot test. Land value, RCNLD, and a cited unit-cost source are the pricing half. The regulation and the inspection are the classification half.
Reconciling to the price
Estimates of replacement cost new are reduced for physical deterioration and functional obsolescence. The result should approximate the price less land value. Forcing estimates to match the price with a uniform step-up is not acceptable under the audit guide.
If the price includes a going business, part of the consideration may be intangibles rather than tangible improvements. Section 1060’s residual method applies when the assets constitute a trade or business. Many rental purchases may fall outside that statute.
A written allocation in the purchase agreement can limit what a later study can reassign. Peco Foods bound the buyer to the agreement’s schedule. Read the contract before the study starts.
Who prepares it
The IRS has not set preparer qualifications for studies. For used property, the audit guide states studies should be performed by qualified appraisers, citing AmeriSouth XXXII v. Commissioner. In that apartment-complex case the Tax Court rejected most of a study's shorter-life classifications and held the items were part of the buildings.
That sentence is examiner guidance, not a licensing statute. The Service has also said it has not established requirements or standards for preparing studies. The practical point is that used-property pricing is an appraisal problem as well as a classification problem.
CostSeg SI does not claim that engineer certification or a live appraisal module is operational. Any proposed review step is explanatory until staffing and process are confirmed.
Bonus depreciation for used property
Used property can qualify for bonus depreciation if the taxpayer did not previously use it and the acquisition meets the related-party and other limits in §168(k). As of October 16, 2026, qualified property acquired after January 19, 2025 is eligible for 100%; property acquired under a binding contract signed earlier follows the prior phase-down.
Related-party purchases, carryover-basis transfers, and property the taxpayer already used fail the used-property tests. Publication 946’s example of machines bought from one’s father is the §179 illustration of the same family of limits.
The building itself remains ineligible because 27.5- and 39-year property is outside the 20-year qualified-property ceiling. The bonus question on an acquisition study is about the shorter-lived components, not about turning the structure into first-year property.
Documents that matter most
The closing statement, purchase agreement, any allocation exhibit, appraisals, a rent roll, and whatever drawings still exist are the usual start. Leases help show who owns interior improvements.
A site inspection is how the preparer learns what is actually there. Photographs of attachment, function, and site work replace the missing contractor invoices for classification — not for inventing costs that exceed the price. The visit supports the class. The purchase price, after land, still caps the dollars.
Look-back on an older purchase
If the building has already been depreciated as one asset on prior returns, the acquisition study is usually implemented as a method change. Bonus rates follow the original acquisition and placed-in-service dates, not the year the study is written.
See the look-back and Form 3115 articles for the filing path. The estimating method described here does not change that procedure.
Sources
- 1IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
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- 6IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.