What should one use for the home basis value in a CSS?

[Costin I.]

My understanding in this matter, there are several options for selecting the home basis for a cost segregation study:

A. Property appraisal (if you have one).

B. Tax Assessment – tax assessment for the property in question shows Land @ $48,920 and Improvement @ $174,300 (or a 22%/78% distribution from the total tax assessed value of $223,220).

Wouldn’t be fair to use the $174,300 valuation as the basis for the CSS? After all, I paid county taxes based on that.

Or, if we were mandated to use the acquisition cost (195K), shouldn’t we apply the same percentage to it (as in 78% of the purchase price)? 

C. Replacement/construction cost estimation as per insurance policy, $236K - can we use this one?

Whenever I tell the insurance the tax-assessed value of a property is X, they tell me is irrelevant, as they need to consider the replacement/construction cost for the policy premium.

D. Comparable sales

E. Engineering study

Can I use the one with the biggest value, and gives me the biggest basis?

CSS experts and Tax experts, what do you say?

[Michael Plaks]

@Costin I.

Your understanding is incorrect. The ONLY basis for CSS you can use is your actual tax basis, i.e. your acquisition cost plus some closing costs and post-acquisition capital improvements.

The confusion comes from misunderstanding the essence of what cost segregation is. It does not create any new basis or new deductions. All it does is takes your already calculated tax basis (again - your actual acquisition) and identifies some components of that basis that have more favorable depreciation treatment. 

Think about your SO preparing food for a SuperBowl party. And then you come home hungry and want to wolf down some of it. You ask - honey, what can I eat right now? She allows you to take a few bites from here and there. This is cost seg. Notice: the amount of food she prepared is exactly the same. She just lets you eat some of it ahead of time, because otherwise you're too disagreeable to be around.

Now, you have different methods of allocating land for CSS purposes. There indeed you can rely on county assessment, appraisals, insurance and even on Zillow.