Commercial property
Cost segregation for commercial real estate
Nonresidential real property depreciates over 39 years. Between 15% and 40% of what you paid for it does not have to.
What separates commercial from residential
Three things, and they all push in the same direction.
The recovery period is longer. Nonresidential real property recovers over 39 years under GDS, against 27.5 for residential rental. Every dollar you move to a 5 or 15-year life is therefore escaping a longer wait, which makes the present-value benefit larger.
Site work is heavier. Commercial properties carry parking fields, truck courts, loading areas, site lighting, monument signage, storm systems and landscaping at a scale residential rarely matches. All of it is 15-year land improvement property, and it is often the single largest reclassified category.
Qualified improvement property exists. QIP applies only to nonresidential buildings. Interior improvements made after the building was first placed in service — excluding enlargements, elevators and escalators, and internal structural framework — carry a 15-year life and full bonus eligibility. Landlords who fund tenant build-outs accumulate QIP continuously and frequently depreciate it over 39 years by default.
The typical commercial component split
Below is the shape of a study on a $5,000,000 depreciable basis in a mid-range commercial property. The percentages vary widely by type — see the individual property pages for the real ranges.
| Class | What lands here | Life | Illustrative basis |
|---|---|---|---|
| 1245 | Finishes, dedicated power, cabling, millwork, specialty plumbing, signage, equipment support | 5-year | $650,000 |
| 1245 | Furniture, fixtures and equipment retained by the owner | 7-year | $150,000 |
| 1250 | Paving, curbs, site lighting, landscaping, drainage, fencing, QIP | 15-year | $700,000 |
| 1250 | Structure, envelope, roof, elevators, base building systems | 39-year | $3,500,000 |
See it on the building
Tap any part to see which schedule it lands on — and why a study moves it.
Each component has its own depreciation life. Tap any part to see where it lands — and why a study moves it off the 39-year schedule.
Tap the roof, walls, parking, wiring, cabinetry, flooring, signage or landscaping.
The detail, if you want it
Qualified improvement property is the most commonly missed line on commercial schedules. A 2017 drafting error left it on a 39-year life; the 2020 CARES Act fixed it to 15 years retroactively — and a lot of owners never went back to correct the schedules they'd filed in between.
Put interior improvements in service in 2018 or 2019 and depreciate them over 39 years? That's a correctable method — fixed on a Form 3115, not through amended returns. Full QIP guide.
When you replace a roof, a chiller or a storefront, the old one is usually still on your depreciation schedule — being written off slowly even though it's in a landfill. The tangible property regs let you elect to write off its remaining basis all at once.
You can't make that election without knowing what the old component cost — which is exactly what a study establishes. Owners who run one before a big capital project routinely recover more from the disposition than the study cost.
By building type
Pick your building
Each page lists the specific components we reclassify, the recovery period each one lands on, and a worked example.
Office buildings
Office buildings look monolithic and reclassify better than owners expect. The structure is genuinely 39-year property, but the…
Component list →
Retail & strip centers
Retail is one of the strongest property types for cost segregation, and the reason is simple: a strip center is mostly parking, and…
Component list →
Warehouse & industrial
A distribution building is mostly slab, tilt-wall and roof, which is exactly why owners assume a study will not pay. Then you price…
Component list →
Restaurants
No property type reclassifies like a restaurant. Between the kitchen, the finish package and the drive-through, a quarter to…
Component list →
Medical & dental offices
A clinical build-out is one of the densest concentrations of five-year property in commercial real estate. The building may be…
Component list →
Hotels & hospitality
A hotel is three buildings stacked into one: a guest-room block, a food and beverage operation and a public amenity floor. Each…
Component list →
Self-storage facilities
Self-storage looks like the simplest building in commercial real estate and produces some of the most favourable reclassification…
Component list →
Manufacturing facilities
In a plant, the hard question is where the building stops and the process begins. That line is where the deduction lives, and it is…
Component list →
Auto dealerships & service
A dealership is a showroom, a service factory and several acres of finished pavement. Two of those three reclassify…
Component list →
Grocery & convenience stores
Refrigeration is the story. A grocery or convenience store carries a plant's worth of mechanical equipment devoted entirely to keeping…
Component list →
Senior living facilities
Senior living carries a hotel's finish package, a clinic's infrastructure and a resort's site plan. Studies here routinely reach the…
Component list →
Mixed-use properties
Mixed-use is the property type where the study has to answer a threshold question first: which part of this building is residential,…
Component list →The study is one piece. We can handle the rest of the return.
Deprecio is part of the Shurek Accounting & Tax family of brands. If you want the study and the tax work under one roof — the return, the Form 3115, entity structure, quarterly estimates, multi-state filings — that is a single engagement, not a hand-off between two firms.
Common questions
What size commercial building justifies a study?
As a working rule, a depreciable basis above roughly $500,000 clears a study fee comfortably, and above $1 million it is rarely a close call. Below that, the answer depends on property type — a $400,000 restaurant reclassifies far more than a $400,000 warehouse — and on whether you can use the deduction this year.
We are a tenant, not the owner. Does this apply?
Yes, if you paid for the improvements. Leasehold improvements you funded are your depreciable assets, and interior work in a nonresidential building placed in service after the building itself may be qualified improvement property with a 15-year life and full bonus eligibility. Tenants with substantial build-out spend are frequently better candidates than their landlords.
Does a study work on a building we constructed ourselves?
It works better. New construction gives us actual cost records — the schedule of values, pay applications, change orders and subcontractor detail — which supports direct takeoff, the most reliable costing method. Studies on newly constructed property are usually both cheaper to produce and more precise.
What about a building we hold in a partnership with outside investors?
Common and workable. The study allocates basis at the entity level; how the resulting deduction flows depends on the partnership agreement, the allocation provisions and each partner's passive activity position. Syndications frequently commission a study specifically because the first-year loss allocation is part of the investor pitch. We will flag the section 704(b) and at-risk issues we see, and coordinate with the fund's tax counsel.
No-cost feasibility review
Find out what your building is hiding.
A feasibility review is free and takes about twenty minutes. Bring the closing statement and the depreciation schedule; we will tell you plainly whether a study pays for itself.