How the ASUIP Tests Help Real Estate Investors Maximize Tax Savings Through Cost Segregation

When it comes to maximizing depreciation deductions, one of the most powerful tools at your disposal is a cost segregation study. By identifying and reclassifying assets from long-lived real property (§1250) to shorter-lived personal property (§1245), real estate investors can accelerate depreciation and boost cash flow. But how do you determine which assets qualify? That’s where the ASUIP tests come in.

Key Takeaway

• The ASUIP tests are critical tools for identifying assets that qualify for accelerated depreciation under §1245.
• Passing just one ASUIP test may be enough to reclassify an asset, depending on how it functions in your business.
• Cost segregation decisions rely on a facts-and-circumstances analysis—not a one-size-fits-all rulebook.

Table of Content

• Key Takeaway
• What Is ASUIP?

1. Accessorial Test
2. Sole Justification Test
3. Unitary Test
4. Incidental Use Test
5. Permanency Test (Whiteco Test)

• Tests Are Not Weighted Equally
• Why It All Matters
• Final Thoughts

What Is ASUIP?

ASUIP is an acronym that summarizes five key criteria used by the IRS and courts to determine whether an asset is §1245 personal property or §1250 real property. These tests are drawn from the IRS Cost Segregation Audit Techniques Guide (ATG) and related case law, and they play a crucial role in defending accelerated depreciation positions.

1. Accessorial Test

Question: Does the asset serve a business function beyond the building’s general utility?

✅ Yes: It’s likely personal property.

Example: Specialized electrical outlets for plug-in commercial kitchen equipment. While they may be permanently installed, their function is specifically tied to the business activity.

2. Sole Justification Test

Question: Is the asset only there to support specific business equipment?

✅ Yes: It’s probably personal property.

Example: A dedicated HVAC system used solely to maintain environmental conditions for a fermentation process in a brewery. Even if it’s permanent, the asset qualifies under this test.

One Test Can Be Enough: If an asset clearly satisfies any single test — like the Sole Justification Test — that alone may be grounds for §1245 classification, even if it doesn’t meet other tests like Permanency.

3. Unitary Test

Question: Does the asset function as part of a larger integrated system?

✅ Yes: The whole system may be considered personal property.

Example: A television, cable jack, and power outlet installed as part of a commercial AV setup.

4. Incidental Use Test

Question: Does the asset serve the building generally, but primarily benefit a specific business function?

✅ Yes: It may qualify as personal property.

Example: A kitchen exhaust hood that contributes to occupant comfort but is primarily installed for cooking fume extraction.

5. Permanency Test (Whiteco Test)

Question: How permanent is the asset?

This test evaluates factors like:

• Is it easily removable?
• Was it designed for relocation?
• Does removal cause damage?
• Has it historically been moved?

✅ Passes these? It likely qualifies as personal property.

Example: Modular furniture, carpeting, or movable partitions.

Tests Are Not Weighted Equally

Each test provides unique insight, and some carry more weight depending on context:

• Permanency Test is especially compelling for easily removed assets like signage, floor coverings, or partitions.
• Accessorial or Unitary Tests are powerful in industrial, manufacturing, or lab settings where components are integrated into equipment or processes.
• Incidental Use shines in mixed-use environments — for example, lighting or HVAC used for both occupant comfort and equipment-specific needs.

Why It All Matters

Correctly applying the ASUIP tests means you can:

• Accelerate depreciation on qualifying assets
• Increase near-term cash flow
• Strengthen audit defensibility
• Optimize your overall tax strategy

Final Thoughts

Cost segregation isn’t just about numbers—it’s about strategy and substance. The ASUIP tests provide a clear framework for reclassifying assets in a way that’s both IRS-compliant and investor-friendly.

Want help applying ASUIP to your property? Get in touch with a cost segregation expert to unlock the full power of strategic asset classification.