Office · Retail · Industrial · Hospitality
Commercial Cost Segregation
By Howard Krieger, MBA, former ASA, Managing Director, ClickDrag Finance. Updated .
Commercial cost segregation moves part of a 39-year building into 5-, 7- and 15-year property: for office, retail and mixed-use buildings, typically 20–38% of the depreciable basis (purchase price plus construction costs, less land). Tenant improvements, specialty electrical, paving and site work are the usual sources, and bonus depreciation, 100% for qualified property acquired after January 19, 2025, unless the owner elects out, can bring their deduction into the year the building is placed in service.
Document-driven · Qualified human review · Built on the IRS ATG methodology
$499* / $15,000
A $499* cost segregation workpaper for a rental property, for owners and advisors (*for a property whose purchase price plus construction costs total under $2.0 million); a $15,000 study up to $250 million in purchase price plus construction costs.
Typically 15–20 business days
The study is typically delivered 15–20 business days after complete documents are in.
Fully documented
Built on the methodology in the IRS Cost Segregation Audit Techniques Guide, with each component traced to its cost source and the authority for its recovery period.
Why does a commercial building need a cost segregation study?
Because under MACRS every dollar of a commercial building's depreciable basis defaults to a 39-year straight-line schedule: $10 million of depreciable basis (excluding land) deducts about $256,000 in a full year. A cost segregation study dissects the building into its component assets and re-assigns each one to the shortest recovery period the IRC allows.
Components that serve a business function rather than the building structure — tenant finishes, specialty electrical, process plumbing, security systems — typically qualify for 5- or 7-year treatment. Land improvements like paving and fencing move to 15 years. Under IRC §168(k) bonus depreciation, which is 100% for qualified property acquired after January 19, 2025, unless the owner elects out, those reclassified costs can be deducted in the year the property is placed in service instead of over four decades; property acquired on or before that date gets the phase-down rate for its placed-in-service year.
| Commercial asset | Reclassified to |
|---|---|
| Tenant finishes & specialty interior systems | 5-year |
| Specialty electrical (dedicated circuits, process power) | 5-year |
| Removable wall systems & modular partitions | 5-year |
| Process plumbing & mechanical equipment connections | 5-year |
| Security, access-control & low-voltage systems | 5-year |
| Parking lots, paving & curbing | 15-year |
| Fencing, gates & site security | 15-year |
| Pole-mounted site lighting; sign poles & pylons (not the sign face) | 15-year |
| Landscaping & irrigation | 15-year |
How does commercial cost segregation differ by property type?
- Retail: typically 25–35% of the depreciable basis (purchase price plus construction costs, less land) (a planning band, not a promise); the IRS Cost Segregation Audit Techniques Guide (Publication 5653) has a retail industry chapter (7.B) that classifies common retail assets.
- Industrial and warehouse: typically 15–22% of the depreciable basis (purchase price plus construction costs, less land) (a planning band, not a promise); paving, site work and equipment-related electrical are the usual lines to look at.
- Medical office: no planning band is published, because the share comes from the building's own cost detail; tenant-specific medical systems are the lines that need documentation.
- Restaurant: no planning band is published; the IRS Cost Segregation Audit Techniques Guide (Publication 5653) has a restaurant industry chapter (7.C) that classifies common restaurant assets.
- Office: typically 20–30% of the depreciable basis (purchase price plus construction costs, less land) (a planning band, not a promise); the property's purchase price plus construction costs, not its type, decides which product applies (see small-office cost segregation pricing).
How does bonus depreciation change the first-year deduction in 2026?
IRC §168(k) allows qualifying property with a recovery period of 20 years or less to be fully expensed in the year it is placed in service. For commercial property owners, that means every dollar reclassified out of the 39-year schedule into 5-, 7-, or 15-year property can potentially become a dollar-for-dollar deduction in year one for property acquired after January 19, 2025 (earlier acquisitions stay on the TCJA phase-down) — subject to the taxpayer's at-risk and passive-activity rules.
This is a hypothetical illustration, not a projection for any property. Take an office building with $5,000,000 of depreciable basis (purchase price plus construction costs, less land), and assume, only for the arithmetic, that a study moves 20% of it ($1,000,000), the low end of the office planning band, into 5-, 7- and 15-year property acquired after January 19, 2025. The $1,000,000 can then be deducted in the year the building is placed in service, unless the owner elects out, and the remaining $4,000,000 deducts about $102,564 in a full year. At an assumed 37% federal rate, for an owner who can use the whole deduction that year under the at-risk and passive-activity rules, about $370,000 of federal tax moves from later years into the first year. That is a deferral, not a saving: the same basis is recovered over the building's life. On a taxable sale at a gain, recapture applies, up to the amount of that gain, however long the property was held, outside the Opportunity Zone 10-year rule (a qualifying investment held 10 years with the IRC §1400Z-2(c) election): §1245 recapture on the 5- and 7-year property is ordinary income, as is §1250 recapture of the depreciation taken above straight-line (bonus included) on 15-year land improvements held more than one year, and the rest of the depreciation on those land improvements and on the 27.5- or 39-year structure is unrecaptured §1250 gain, taxed at up to 25% for a noncorporate taxpayer. Your CPA can confirm the effect on your own return.
What does a commercial cost segregation study document for each component?
The IRS cost segregation guide, the Cost Segregation Audit Techniques Guide (ATG), describes how cost segregation studies are prepared and reviewed. Our studies are built on its methodology: every component is supported by its construction cost documentation and a written rationale for its recovery period that cites the relevant revenue procedure, revenue ruling or court precedent.
The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component.
Built to IRS ATG
Every study follows the Audit Techniques Guide — the IRS's own published standard for cost segregation review.
Full asset detail
Component-level schedules with costs, cost sources and recovery period citations, not summary-level allocations.
Look-back eligible
Own the property already? A look-back study catches up prior-year depreciation in the current year. Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules.
How do you choose a cost segregation provider for a commercial building?
Choose a cost segregation company for a commercial building by whether its scope, its method and who signs it match what you, your lender, insurer and CPA require; settle those before comparing prices, because each can rule a provider out.
- Does the provider need to visit the building?
- ClickDrag Finance's study can include a site visit, by appointment, and a visit is preferred; when a site visit is not feasible because of cost or timing, the property is documented from its own records and from photographs linked to the components they support, and each photograph’s embedded date and location data are read and recorded. Providers whose own page states a site visit or inspection, virtual or in person: R.E. Cost Seg, Cost Seg Smart, SMF Cost Segregation Advisors, WeCostSeg, KBKG, Engineered Tax Services, CSSI, Madison SPECS, Capstan Tax Strategies, Maven Cost Segregation and CSA Partners (Cost Segregation Authority) (read October 22, 2026 to October 23, 2026).
- Does the study need a signature?
- Our $15,000 study's signer block names its preparers. Ask each provider who signs its study and whether that is included in its price.
Each provider's price, site visit, signature and audit support, as its own page states them and with the date each was read, are in the best cost segregation companies compared. How an online, document-based service compares with a traditional engineering firm for a commercial building, by provider type, is on online cost segregation vs engineering firms. For a building held by a Qualified Opportunity Fund or its qualified opportunity zone business, how the study's timing and recapture work is on Opportunity Zone cost segregation.
Commercial cost segregation FAQ
Does cost segregation work on commercial property?
Commercial buildings depreciate over 39 years by default under MACRS, but a cost segregation study identifies components — interior finishes, mechanical systems, specialty lighting, paving, and site improvements — that qualify for 5-, 7-, or 15-year recovery periods. Bonus depreciation under IRC §168(k) then allows those reclassified costs to be deducted in the year placed in service.
How much of a commercial building can typically be reclassified?
The share of the depreciable basis (purchase price plus construction costs, less land) that moves out of the 39-year schedule is typically 20–30% for office, 25–35% for retail, 25–35% for healthcare, 25–38% for corporate park and mixed-use, and 15–22% for industrial and warehouse. Tenant-improvement-heavy assets (retail, office, medical) and site-improvement-heavy assets often reach the higher end of their band; an individual property can fall outside it.
How much does a commercial cost segregation study cost?
The $499* cost segregation workpaper covers a rental property, ordered by the owner or by a CPA or advisor for a client (*for a property whose purchase price plus construction costs total under $2.0 million). Our $15,000 study covers a property whose purchase price plus construction costs total up to $250 million; an owner whose property is under $2.0 million is offered the workpaper instead. Above $250 million in purchase price plus construction costs, the study is scoped on a call with an advisor, and if you are not sure of the figure, Howard reaches out personally.
What is the difference between 5-year, 7-year, and 15-year property in a commercial study?
IRC §1245 personal property directly related to a business function (specialty electrical, removable flooring, process piping) classifies as 5- or 7-year. Land improvements that are not part of the building structure (paving, fencing, landscaping, pole-mounted parking-lot lighting) classify as 15-year; building-mounted exterior lighting stays with the building. All three categories are eligible for bonus depreciation under IRC §168(k). The One Big Beautiful Bill Act restored 100% bonus on a permanent basis for property acquired after January 19, 2025; property acquired before that date remains on the phase-down schedule (80% in 2023, 60% in 2024).
How is a commercial cost segregation study documented?
Line by line, back to the source documents: each component carries its cost from the pay application, invoice or closing statement it came from, its recovery period, and the written basis for that recovery period, built on the methodology in the IRS Cost Segregation Audit Techniques Guide (ATG), the IRS's own guide to how studies are prepared and reviewed. The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component.
Who can help recover missed depreciation on my commercial building?
A cost segregation provider that prepares a look-back study, such as ClickDrag Finance, can recover the depreciation you missed on a commercial building you placed in service in an earlier tax year and still own: the study measures it, and the catch-up is claimed in the current tax year as a §481(a) adjustment. Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules.
Is ClickDrag Finance's commercial cost segregation study engineering-based?
In its method, yes, for the study: ClickDrag Finance's commercial study applies an engineering principles-based methodology to your documents and photographs. The $15,000 cost segregation study is document-driven: it applies an engineering principles-based methodology, the cost classification approach described in the IRS Cost Segregation Audit Techniques Guide (Publication 5653), to the property's own documents and to photographs linked to the components they support, with a qualified human review of every component.
What audit support comes with a commercial cost segregation study?
The audit support that comes with our $15,000 commercial cost segregation study is the study itself. The deliverable itself is the support: the written study, with its methodology, cost sources and per-component classification rationale. For the $499* workpaper, the support is the workpaper and its stated procedures. *For a property whose purchase price plus construction costs total under $2.0 million.
On the cost segregation audit support page, the providers whose own pages state audit support as included, with the date each page was read: Which firms include audit support with commercial depreciation studies?
Ready to accelerate your commercial depreciation?
Document-driven, human-reviewed and fully documented, typically delivered 15–20 business days after complete documents are in.
Find the right studyClickDrag Finance as your commercial office cost segregation provider
We run cost segregation on commercial office buildings, where 20–30% of the depreciable basis (purchase price plus construction costs, less land) typically reclassifies out of the 39-year nonresidential bucket under IRC §168(e)(2)(B) into 5-, 7- and 15-year property.
- Price
- $499 for a cost segregation workpaper on a rental property whose purchase price plus construction costs total under $2,000,000 — a workpaper for the taxpayer's tax preparer, reviewed before release, typically ready 3–5 business days after all required documents are in. $15,000 for the cost segregation study, for a property whose purchase price plus construction costs total up to $250,000,000 — qualified human review and oversight, typically delivered 15–20 business days after complete documents are in. Above $250,000,000, the scope is agreed on a call with an advisor before any price is quoted. Both are offered to owners and to CPAs or advisors acting for a client; the property's purchase price plus construction costs decide which one applies.
- Eligibility
- No unit-count limit and no hard minimum. A cost segregation study is worth it when three conditions hold together: the basis is large enough for the accelerated deductions to outweigh the fee (roughly $500K of basis for a study priced in the thousands of dollars, which is a pricing threshold rather than a tax rule, and lower for a lower-priced report), the deduction is usable this year given the owner's passive-activity position, and the hold is long enough to survive recapture. All three, or the honest answer is no.
- What is included
- Component-level classification documented to the IRS Cost Segregation Audit Techniques Guide, reconciled to your depreciable basis, with a depreciation schedule and a fixed-asset import template for your CPA, built from your documents and from photographs linked to the components they support.
- Payment
- The workpaper is paid in full at checkout; a study starts with a call and a proposal. All fees are non-refundable except as required by applicable law (see our terms).
Start your cost segregation study · Full pricing and eligibility · How we compare to other providers, including where a cheaper one is the better buy
Educational information, not tax advice. No estimate is a completed cost segregation study.
Who reviews and who signs a ClickDrag Finance cost segregation study?
| Question | $499* workpaper | $15,000 study |
|---|---|---|
| Who reviews it? | It is reviewed before release. | A qualified human review of every component, with a project manager on the engagement. |
| Who signs it? | It is a workpaper for the taxpayer's tax preparer, prepared from the information the buyer provides. | ClickDrag Finance signs the study (black label), and its signer block names its preparers: Howard Krieger (MBA, former ASA), Managing Director; and Robert H. Hutchins (CPA (Inactive), CVA (Emeritus)), Senior Tax Advisor. |
| Does a cost segregation study include a site visit? | It is prepared from the documents and photographs the buyer provides. | It can include a site visit, by appointment, and a visit is preferred; when a site visit is not feasible because of cost or timing, the property is documented from its own records and from photographs linked to the components they support, and each photograph’s embedded date and location data are read and recorded. |
| What audit support comes with it? | The workpaper and its stated procedures. | The deliverable itself is the support: the written study, with its methodology, cost sources and per-component classification rationale. |
*For a property whose purchase price plus construction costs total under $2.0 million.
Our terms set out the terms of each product.