AmeriSouth v. Commissioner: How the Case Shaped Cost Seg
AmeriSouth XXXII Ltd v. Commissioner (T.C. Memo 2012-67) is one of the most-cited cost segregation cases. The Tax Court rejected the taxpayer's reclassification of substantial residential apartment building components from real property (Section 1250) to personal property (Section 1245). The aftermath sharpened the legal line: components that are 'inherently permanent structures' remain real property regardless of their function.
Case facts
AmeriSouth XXXII Ltd owned a residential apartment complex and engaged a cost seg engineer who reclassified approximately $11 million of basis from 27.5-year residential to 5-year personal property and 15-year land improvements.
The IRS challenged the reclassification of substantial components including site preparation, water distribution systems, sewer connections, sidewalks, and similar items. The Tax Court rejected most of the reclassification.
The legal standard sharpened
AmeriSouth applied the 'inherently permanent structure' test from Whiteco Industries v. Commissioner. Components that are inherently permanent (not designed to be removed) remain real property under Section 1250 regardless of their function.
Functional components like specialized lighting or production-related equipment may qualify as Section 1245 personal property even when attached to the building. The test is permanence, not attachment.
Implications for current cost seg practice
Quality cost segregation studies post-AmeriSouth carefully document the Section 1245 vs 1250 classification for each component. Inherently permanent structures stay on the 27.5- or 39-year schedule.
Aggressive reclassification of inherently permanent components creates audit risk and may be rejected on AmeriSouth-style analysis. WeCostSeg studies follow the post-AmeriSouth standards rigorously.
Frequently asked questions
- How does WeCostSeg coordinate with my CPA?
- Every engagement follows the three-touch CPA Coordination Protocol. Preliminary analysis CC'd to your CPA on intake, draft report shared five business days before final delivery, and Form 3115 filing coordinated when a Section 481(a) adjustment applies.
- Does OBBBA's 100% bonus apply to my acquisition?
- 100% applies to property under a binding contract on or after January 20, 2025 per Public Law 119-21. Property under a binding contract on or before January 19, 2025 stays on the legacy phase-down: 40% in 2025, 20% in 2026, 0% in 2027 and after.
- Is audit defense included?
- Yes. Every WeCostSeg engagement includes five years of written audit defense at no extra charge, aligned to the 13 Principal Elements of a Quality Cost Segregation Study under IRS Publication 5653 Chapter 4.
- Can I get a free preliminary analysis?
- Yes. Submit property details via the free proposal form or WhatsApp. Engineer-reviewed estimate returned within four business hours during US Eastern hours.
Zawwad Ul Sami, Founder
Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.