What Cost Segregation Means in the Context of the Investment Tax Credit (ITC)
For ITC projects, Cost Segregation is not just a depreciation exercise. It is a foundational cost-basis analysis that supports how project costs are classified, allocated, and substantiated for tax credit purposes.
Because the primary objective is establishing and defending ITC basis, this work is often referred to as an ITC Cost Study or ITC Cost Basis Study. While the methodology is rooted in traditional cost segregation principles, the scope, documentation, and analysis are tailored specifically to energy tax credit requirements rather than depreciation acceleration alone.
In the ITC context, a Cost Segregation Study is used to:
- Establish eligible ITC basis
- Properly classify §1245 and §1250 property
- Separate credit-eligible assets from non-eligible costs
- Support bonus credit calculations such as Domestic Content
- Create audit-ready documentation that ties construction costs to tax positions
How Cost Segregation Supports ITC Claims
The value of the Investment Tax Credit is directly tied to how project costs are identified and allocated. An ITC Cost Study helps ensure that energy property is properly classified, supporting infrastructure is reasonably allocated, and non-qualifying building costs are excluded from ITC basis.
This is particularly important for projects where energy systems are integrated into the facility, such as solar, geothermal, battery storage, microgrids, and hybrid energy deployments. In these cases, cost segregation provides the technical and financial support needed to justify what portion of the project qualifies for the credit.
Key Benefits for ITC Projects
- Accurate determination of ITC-eligible cost basis
- Reduced risk of overstating or understating credit value
- Clear separation of energy property from general building assets
- Strong support for Domestic Content and other ITC adders
- Documentation aligned with IRS audit expectations
When an ITC Cost Study Makes Sense
An ITC-focused Cost Segregation Study should be considered for projects involving:
- New construction with embedded energy systems
- Retrofits or expansions that add qualifying energy property
- EPC or design-build contracts with bundled costs
- Facilities with shared electrical, structural, or mechanical systems
- Projects pursuing bonus credits, credit transfer, or direct pay
While depreciation benefits may still exist, the primary driver in these cases is credit accuracy, defensibility, and compliance.
Walker Blue’s ITC Cost Segregation Approach
Our process is designed specifically to support ITC claims and related bonus credits. We do not treat these studies as generic real estate depreciation reports.
We evaluate the project structure, energy technologies involved, and how costs were incurred. This includes identifying ITC-adjacent analyses such as Domestic Content, prevailing wage and apprenticeship, and credit transfer considerations.
We collect construction contracts, invoices, schedules of values, drawings, and accounting records needed to trace costs to qualifying energy property.
Our engineers analyze drawings and specifications to identify qualifying energy assets and supporting infrastructure.
Where costs are bundled or incomplete, we perform detailed engineering-based cost estimates using recognized cost sources such as RSMeans.
We conduct site visits to confirm installed equipment, verify assumptions, and identify qualifying property not evident from drawings alone.
We allocate indirect costs using IRS-accepted methodologies, tying them to §1245 or §1250 property as appropriate.
We prepare detailed schedules that support ITC basis, bonus credit eligibility, and depreciation treatment.
Our deliverables are structured to integrate cleanly with Forms 3468, credit transfer documentation, or direct pay filings.
Why Choose Walker Blue?
ITC-Focused Expertise & Experience
We understand how the IRS evaluates ITC basis and where projects commonly break down under review.
Engineering-Led Analysis
All studies are led by in-house engineers and architects with direct experience in energy system design and construction.
Audit-Ready by Design
Our reports clearly show how costs were derived, allocated, and classified, with support behind every assumption.
Integrated Energy Tax Services
Because we also perform Domestic Content, prevailing wage and apprenticeship, and other ITC-related analyses, our cost segregation work aligns with the broader credit strategy instead of working in isolation.
