What is inside a child day care cost segregation report
The full structure of the deliverable, section by section, with the numbers from one illustrative sample study on a 9,500 SF purpose-built center. Every figure on this page is transcribed from that report, so you can hold your own study against it.
What this is. An illustrative sample report on a representative child day care center, watermarked ILLUSTRATIVE SAMPLE on every one of its 85 pages. There is no client in it and no real address. The interior images in it are AI-generated representative images, and the report says so on the page they appear on: they are not photographs of the subject property and nothing in the schedule is evidenced by them. On a live engagement your own photographs are incorporated per IRS Pub 5653 Chapter 4. There is no photography of a real center. It is not a customer's study, redacted or otherwise, and we do not publish one without that customer's named approval. What is real is the method, the section structure, the authorities cited and the schedules: those are what a paying engagement receives.
The property the sample is built on
A center chosen to be ordinary rather than favourable: purpose-built, middling age, no declared feature list at all. That last one matters — the sample was given nothing beyond the property type, public records and imagery, so it shows what the study finds before an owner tells us anything.
What the sample allocated, class by class
This is Section 3 of the report. The four class amounts add to the depreciable basis exactly, which is the check to run on any study: if the classes do not reconcile to basis, something has been double counted or dropped.
| MACRS class | Allocated basis | % of basis |
|---|---|---|
| 5-year personal property Rev. Proc. 87-56 Cl. 57.0, data cabling Cl. 00.12 Commercial kitchen equipment, casework and the dedicated plumbing, gas and hood exhaust serving it; classroom cubbies, storage casework and cot storage; classroom carpet tile and cushioned resilient flooring; diaper-changing stations and classroom hand-wash casework; secure entry vestibule access control and visitor management; security cameras and remote family-viewing monitoring; low-voltage data, telephone and paging cabling; laundry room dedicated plumbing, venting and electrical; indoor motor and sensory room play equipment and padding; removable wall protection, wainscot and themed graphics; decorative and accent lighting; child-safety gates, half-doors and dividers; surface-mounted acoustic panels; nap-room zoned dimming controls | $177,886 | 12.8% |
| 7-year personal property Rev. Proc. 87-56 Cl. 00.11 Classroom and activity room furniture, cots and activity tables, office and reception furniture | $35,164 | 2.5% |
| 15-year land improvements Rev. Proc. 87-56 Cl. 00.3 Outdoor playground safety surfacing with its curbs and drainage, playground play structures and site-fixed equipment, playground perimeter fencing and self-closing gates, the parent drop-off lane, parking and striping, site lighting, landscaping and irrigation, sidewalks and exterior paving, stormwater detention, exterior monument signage | $152,497 | 11.0% |
| 39-year real property IRC §1250 structural components Shell, roof and foundation, classroom partitions, comfort HVAC, general electrical and general plumbing, restrooms including child-height fixtures, glued-down sheet flooring in restrooms and the kitchen, fire sprinklers, general lighting | $1,026,453 | 73.7% |
| Total depreciable basis | $1,392,000 | 100% |
| Accelerated property, 5-, 7- and 15-year | $365,547 | 26.3% |
Read this as one result, not as a range. This center reclassified 26.3% of basis, which sits inside the 15–28% of basis we model for the type, and says nothing about where any other center lands. The two things carrying this one are visible in the table above: a licensing-driven interior, where the kitchen, the per-room hand-wash and changing casework and the secure entry are all built for the care operation rather than for the building, and a real outdoor playground with poured safety surfacing, anchored structures and fencing. A converted house or a strip-retail bay with a small yard has neither at this scale. Age, finish level, declared equipment, recent improvements and the land share all move the answer, which is why we model the actual property before quoting anything.
Why a day care reclassifies more than a plain office
Because the state made you build things an office does not have. Almost everything in the 5-year column below exists because a licensing rule required it, and almost everything in the 15-year column exists because children have to be able to go outside. Child day care is asset class 57.0, distributive trades and services, under Rev. Proc. 87-56, so qualifying personal property in the building is 5-year.
Moves off the 39-year schedule
- Kitchen: equipment and casework, plus the dedicated plumbing, gas train and hood exhaust sized for it, because a licensed center serves meals
- Classrooms: cubbies, storage casework and cot storage, carpet tile and cushioned resilient flooring, surface-mounted acoustic panels
- Per room: diaper-changing stations and hand-wash casework, child-safety gates, half-doors and dividers
- Entry: vestibule access control and visitor management, keypad and fob readers, buzzer release, intercom and camera
- Monitoring: room cameras, recorder and remote family-viewing feed
- Cabling: low-voltage data, telephone and paging, asset class 00.12
- Also: laundry dedicated plumbing, venting and electrical; motor and sensory room play equipment and padding; nap-room zoned dimming; decorative and accent lighting; removable wall protection and themed graphics
- 7-year: classroom and activity room furniture, cots and tables, office and reception furniture
- 15-year: playground safety surfacing, play structures, fencing and gates, the drop-off lane, parking, site lighting, landscaping, sidewalks, drainage, the monument sign
Stays 39-year
- Structural shell, foundation and roof
- Classroom partitions — many small rooms are still building
- Comfort HVAC serving the building rather than a process
- General electrical service and general plumbing
- Restrooms, including the child-height toilets and sinks: restroom plumbing is a building component whatever height it is set at
- Glued-down sheet flooring in restrooms and the kitchen
- Fire sprinklers and life-safety systems, and general lighting
Nearly three quarters of this sample's basis stayed here, which is the ordinary outcome for a building of this kind and the reason the accelerated figure is a quarter rather than a half.
If you lease the building to a franchise operator, this is your study, not theirs. The landlord depreciates the building, the site work and whatever conveyed with the purchase. The operator depreciates its own furniture and equipment and any build-out the operator paid for, which is a leasehold improvement study on the operator's return. If you own both, you get both, and the intake asks what was included in the purchase so that nothing is counted twice.
The 85 pages, section by section
Fourteen numbered sections and seven appendices. The page ranges below are this sample's; length scales with the building and with how much documentation an engagement carries.
Executive summary
The headline result, the class-by-class allocation, and the two subsections a CPA reads first: 1.1 Year 1 Tax Impact Analysis and 1.2 Allocation Bridge. This is where the $365,547 of accelerated property and the estimated $379,803 of total first-year depreciation are stated and sourced.
Property summary
The subject property as the study saw it: area, year built, acquisition and placed-in-service dates, the room program, the land allocation and its source, and the inputs each figure rests on.
Cost allocation summary
The allocation by class and by category, with every principal accelerated component named and priced, and the statement that the component allocations reconcile exactly to the depreciable basis.
Detailed component breakdown
Every identified component with its class life, allocated amount, authority and evidence basis. Includes 4.1 Facilities Summary by CSI Division, 4.2 Indirect Cost Allocation and 4.3 Reconciliation of Costs.
Engineering rationale by category
Why each category was classified as it was, written per category rather than per line, so the reasoning can be followed without reading the full schedule.
MACRS depreciation schedules
Year-by-year deduction tables for each class, with the bonus treatment applied in the placed-in-service year, formatted to carry onto Form 4562.
NPV analysis (illustrative only)
The time value of moving the deductions forward, labeled illustrative because it depends on a discount rate and a tax rate the taxpayer supplies.
Depreciation recapture considerations
What reclassification means on a later sale, including the §1245 treatment of the personal property the study identifies.
Sensitivity considerations
How the result moves when the inputs move, which is the section that answers whether a different center would land somewhere else.
Methodology and basis of analysis
The engineering-method cost approach, the data sources used, and the IRS Pub 5653 interview and documentation expectations the study is written against.
Legal authority for asset classification
The statutory and administrative authority behind each classification position taken in the schedule.
Schedule for fixed asset ledger entry
The result restated in the form a fixed asset ledger wants it, so the classifications can be booked without retyping the schedule.
Tax practitioner review considerations
The decisions the report deliberately leaves to the CPA, including the filing method: original return, amended or superseding return, or a Form 3115 method change.
Conclusion
The result restated with its limitations, and what would change it.
Appendices
A, cost derivation summary. A-1, the multiplier ledger, which shows every adjustment applied to a modeled unit cost and why. B, IRS ATG quality elements mapped to where the report addresses each one. C, Rev. Proc. 87-56 and the IRC framework. D, case law and IRS rulings. E, audit documentation and support. F, exhibits and supporting documentation.
What this sample does not contain, and why
There is no §481(a) lookback workpaper in it. The subject property was acquired and placed in service in 2025, so there is no prior-year depreciation to catch up, and the report states plainly that it does not calculate a §481(a) adjustment. A study on a center held for years does add that computation and the Form 3115 reference workpaper, because that is the whole point of a lookback; your CPA prepares and files the Form 3115 itself. Section 13 sets out that filing-method decision. We would rather tell you what is absent than describe a section you would not receive.
What an examiner would look for
The IRS Cost Segregation Audit Techniques Guide, Pub 5653, sets out the principal elements an examiner reviews when a study is challenged. The sample maps to them section by section, and Appendix B does that mapping explicitly rather than leaving it to the reader:
- Engineering analysis, Sections 5 and 10, the rationale by category and the method it rests on
- Component-level documentation, Section 4, every component with its class life, allocated amount, authority and evidence basis
- Cost derivation, Section 4.2 and Appendices A and A-1, indirect cost allocation, the derivation of the unit costs from industry-standard construction cost data, and the ledger of every adjustment applied to them
- Asset-class mapping, Sections 3 and 11, each position tied to its Rev. Proc. 87-56 class with the authority stated on the line
- Reconciliation, Section 4.3, the check that the allocated components add back to the depreciable basis
- Audit documentation and support, Appendices B, D, E and F
Audit support ships with the report and does not expire: the workpaper exhibits, the classification rationale per component, internal technical review, and written answers to your CPA's questions about our methodology. Full scope at /audit-defense/.
Report questions
Is this a real customer's day care study?
Why did this sample reclassify 26.3% when the child day care page says 15–28% of basis?
The playground is 11% of basis. Is that normal?
What stays on the 39-year schedule?
The sample has an "illustrative invoice assumption" line. What is that?
How long is the report, and what does a study cost?
See your center's numbers, not a sample's.
A child day care study is self-serve: the address, the purchase price, the square footage and the number of classrooms are enough to start. If you have build-out invoices or a kitchen equipment list, they replace modeled costs with documented ones.
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