The honest answer for high-income professionals — how the IRS actually picks returns to look at, what stands out, what does not, and how to stay protected. With every source cited.
One-line version: A cost segregation study by itself does not put a target on your back — the IRS expects them and even publishes its own manual for reviewing them. What raises the odds of a look is a return that suddenly looks very different from other people in your profession and income bracket — and losses used in ways the passive-loss rules do not allow.
Cost segregation is a normal, IRS-accepted tax strategy used by property owners across the country. The IRS publishes its own Cost Segregation Audit Techniques Guide (Publication 5653) telling its examiners exactly how to review these studies — which means the agency expects to see them on returns. The study itself is not a red flag.
A professionally prepared, engineering-based study actually lowers your audit exposure, because it is precisely the documentation an examiner asks for first. Most problems arise from sloppy or undocumented allocations — not from large, justifiable deductions.
Nearly every return is scored by a computer system called the DIF score (Discriminant Information Function). In plain English: the computer compares your return to other taxpayers like you — same kind of work, same income bracket. The further your deductions, losses, and effective tax rate drift from what is statistically normal for your peer group, the higher your score. A higher score means a human is more likely to pull your return for review.
Important nuance: a high score is not an accusation. Legitimate deductions belong on the return. It simply means documentation must be able to back up every line.
Take an attorney with strong practice income whose tax bill suddenly drops far below what other attorneys at the same income level pay, because a cost segregation study generated a large first-year depreciation loss. That return now deviates from its peer group — and yes, that raises the DIF score and modestly raises the chance of a look.
Large rental depreciation losses stacked against large professional income is a known stand-out combination — for example, $80,000 of rental depreciation losses against $400,000 of professional income “tends to stand out for review.” The profession does not matter: attorney, physician, or business owner, the pattern is the same.
But “more likely to be looked at” is not “more likely to owe money.” If the study is engineering-based and the loss was legally usable, an audit is a document request, not a penalty.
For a full-time professional, the bigger audit question is usually not “was the cost segregation study real?” but “were you allowed to use those losses against your practice income at all?”
| Situation | Audit-risk effect |
|---|---|
| Engineering-based study from a reputable firm, losses used within the passive rules | Low |
| The cost segregation study itself, done properly | Not a flag |
| Effective tax rate far below your professional peer group | Raises DIF score |
| Large depreciation losses offsetting large W-2 or practice income | Stands out |
| DIY or spreadsheet-only study, no engineering report | The real danger |
| Claiming Real Estate Professional status with a full-time career | Frequently challenged |
| Extreme allocations (40–50% into 5/7/15-year property; normal is roughly 20–35%) | Aggressive |
Recent IRS examination data puts the baseline odds of an individual audit at about 0.4% — roughly 1 in 250 returns. The odds climb with income:
| Income level | Chance of audit |
|---|---|
| Most taxpayers (under about $500,000) | ~0.4% (1 in 250) |
| $500,000 – $1 million | ~0.6% |
| $1 million – $5 million | ~1.1% (1 in 90) |
| $5 million – $10 million | ~3.1% |
| Over $10 million | ~4%+ and rising — the IRS has said it wants this higher |
No official statistic exists for “audit odds with an engineering study vs. a do-it-yourself one,” because the IRS computer that selects returns never sees your report — only your numbers. Study quality mostly changes what happens if you are picked:
Engineering-based study: the most common audit outcome is full acceptance or minor adjustments to a few components. Full disallowance is rare.
DIY or non-engineering study: full disallowance is common — deductions thrown out entirely, with back taxes, interest, and potential accuracy penalties. And the extreme allocations these studies tend to produce are exactly the kind of numbers that raise selection odds in the first place.
Plain version: odds of being picked = your income and how unusual your return looks. Odds of surviving the pick = the quality of the report.
This document is a plain-English education summary, not tax or legal advice. Tax law changes and every situation differs. Whether accelerated losses can offset professional income depends on your specific facts and must be reviewed and signed off by your CPA or tax advisor. No specific audit outcome is guaranteed. © 2026 The Neuman Group.
We will walk you through every line of this brief and connect it to your specific property and income picture — before you commit to anything.