IRS guidance · 2025
IRS Pub. 5653, Ch. 7: Industry-Specific Classification Matrices
IRS Pub. 5653 (2-2025), Ch. 7 — Industry Specific Guidance
IRS audit technique guide
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
Chapter 7 of Publication 5653 provides IRS-approved asset classification matrices for seven industries: retail, restaurants, pharmaceuticals and biotech, casinos and gaming, auto dealerships, auto manufacturing, and residential rental properties. Chapter 2 of the same guide states that when a study's classifications match the applicable matrix, examiners should not make adjustments.
Why it matters for your study: When your property falls into one of these seven industries, the Chapter 7 matrices give your study near-safe-harbor protection. A study that follows the matrix for your property type can cite Chapter 7 to block examiner adjustments to those classifications.
Where this comes from
Cost segregation classification disputes often center on the same types of property in the same types of buildings. The IRS recognized that industry-specific guidance would reduce these disputes.
Chapter 7 of Publication 5653 provides classification matrices for seven industries where the IRS has done the analysis and published the results. These matrices show which building components are Section 1245 personal property getting faster write-offs and which are Section 1250 structural components staying in the longer classes.
What it says
For each of the seven covered industries, the matrices list asset types and their proper classification. A restaurant, for example, has specific wiring, ventilation, and equipment connections that qualify as personal property separate from the building. A residential rental has tenant improvements and finish elements in faster classes. A casino has floor coverings, lighting, and decorative elements tied to the gaming function.
Chapter 2 of Pub. 5653 states directly that when a taxpayer's classifications match the relevant matrix, examiners should not make adjustments to those classifications. That instruction is as close to a safe harbor as you will find in the cost segregation space.
How it shows up in a study
When your property falls into one of the seven covered industries, we apply the Chapter 7 matrix to the relevant components. The legal analysis section of your report cites the specific sub-chapter (for example, Chapter 7B for restaurants or Chapter 7G for residential rental) to document that the classifications follow the IRS-approved matrix.
This matters most on audit. When an examiner sees that the study's classifications match the matrix in Chapter 7, the guide instructs them not to adjust those items. The burden shifts to the examiner to show a reason to depart from the IRS's own guidance.
What it does not mean
The Chapter 7 matrices cover only seven industries. If your property is a warehouse, office building, hotel, or mixed-use property, Chapter 7 does not apply and the classifications depend on the general case law and MACRS rules.
Matching the matrix also does not mean every component in a covered property is automatically personal property. The matrix tells you how the IRS classifies the specific asset types listed. Components not on the matrix still need their own analysis. And the no-adjustment instruction applies to examiners following the ATG, not to Tax Court if a dispute escalates that far.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Methodology & procedure
- Applies to
- Retail, Restaurant, Industrial
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.