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Commercial Cost Segregation
Commercial buildings depreciate over 39 years by default — but 20–40% of a typical building's cost doesn't have to. Reclassify tenant improvements, mechanical systems, paving, and site work into 5-, 7-, and 15-year property and take the deduction in year one with bonus depreciation.
$4,000–$14,000
About 80% cheaper than the $40K–$70K a traditional engineering firm charges for the same IRS-compliant deliverable.
Delivered in days
AI-assisted engineering analysis returns an audit-ready study in days — no 8-week wait before you can file.
Audit-defensible
Built to the IRS Cost Segregation Audit Techniques Guide with full asset detail, quantity takeoffs, and supporting documentation.
The 39-year problem — and the fix
Under MACRS, every dollar you spend on a commercial building defaults to a 39-year straight-line depreciation schedule. That means a $10 million acquisition generates roughly $256K per year in depreciation — useful, but far from optimal. A cost segregation study dissects the building into its component assets and re-assigns each one to the shortest defensible 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, all of those reclassified costs can be fully deducted in the year the property is placed in service, producing a large first-year tax deduction that would otherwise be spread over four decades.
| 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 |
| Site lighting & exterior signage | 15-year |
| Landscaping & irrigation | 15-year |
Bonus depreciation: front-load your deduction in year one
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 — subject to the annual phase-down schedule and the taxpayer's at-risk and passive-activity rules.
On a $5 million commercial acquisition where cost segregation moves 30% of basis ($1.5M) into accelerated property, the immediate year-one deduction could produce $375K–$600K in federal tax savings, depending on the owner's effective rate. Your CPA can confirm the actual benefit for your specific situation.
IRS-compliant and audit-defensible
The IRS publishes a Cost Segregation Audit Techniques Guide (ATG) that defines exactly what examiners look for when reviewing a cost segregation study. Our studies are built to that standard: every component is supported by construction cost documentation, quantity takeoffs, and a written rationale for each recovery period assignment that cites the relevant revenue procedure, revenue ruling, or court precedent.
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, quantities, and recovery period citations — not summary-level allocations.
Look-back eligible
Own the property already? Rev. Proc. 2002-9 lets you catch up all prior-year depreciation in one year without amending returns.
Commercial cost segregation FAQ
Does cost segregation work on commercial property?
Yes. 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?
For most commercial properties, 20–40% of the depreciable basis can be moved out of the 39-year schedule. Tenant-improvement-heavy assets (retail, office, medical) and land-improvement-heavy assets (industrial, flex, hospitality) often reach the higher end of that range.
How much does a commercial cost segregation study cost?
Our commercial studies run $4,000–$14,000 depending on building size and document complexity — roughly 80% less than the $40,000–$70,000 a traditional engineering firm charges. Studies are returned in days, not weeks.
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, parking lot lighting) classify as 15-year. All three categories are eligible for 100% bonus depreciation when first placed in service, subject to the phase-down schedule under current law.
Is a cost segregation study IRS-audit-defensible for commercial property?
Our studies are built to the IRS Cost Segregation Audit Techniques Guide (ATG), which is the IRS's own published standard for evaluating studies. Every component is supported by quantity takeoffs, construction cost allocations, and a documented basis for each recovery period assignment. The result is a study an enrolled agent or CPA can present to an IRS examiner with confidence.
Can I do a cost segregation study on a commercial property I already own?
Yes. A "look-back" study under IRS Rev. Proc. 2002-9 lets you claim the cumulative catch-up depreciation you missed in prior years — all in the current tax year — without amending past returns. There is no statute-of-limitations problem as long as the property is still in service.
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