Cost Segregation on a $1M Office: $142,500 in Accelerated Depreciation

A $1M office building depreciates over 39 years by default, making cost segregation proportionally more impactful than for residential properties on a 27.5-year schedule.

$142,500 Accelerated Depreciation

$52,725 Est. Year-1 Tax Savings

35x Return on Study Cost

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Property Type

Purchase Price

$52,725

Estimated Year-1 Tax Savings

$142,500

Accelerated Deductions

$1,495

Study Cost

35x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $1,000,000 Office

$1,000,000 Office property — cost segregation depreciation example

An office property purchased for $1,000,000 has a depreciable basis of approximately $750,000 (75% after the standard 25% commercial land allocation). Under the default 39-year MACRS schedule, that produces only $19,231 in annual depreciation. Cost segregation reclassifies $142,500 into 5-year, 7-year, and 15-year property classes — capturing interior buildout (5-year), specialized mechanical systems (7-year), and parking, landscaping, and site improvements (15-year).

With 100% bonus depreciation, the full $142,500 is deductible in year one, generating $52,725 in federal tax savings at the 37% rate. The study costs $1,495, producing a 35x return. Results vary based on the building's age, interior finish level, and the extent of tenant improvements.

Office properties present distinctive reclassification opportunities: raised access flooring, dedicated electrical circuits for IT rooms, supplemental HVAC for server closets, built-in reception desks, conference room millwork, and security systems all qualify for accelerated recovery. The longer the default schedule (39 years vs. 27.5 years for residential), the greater the benefit of moving components into shorter MACRS classes.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$142,500 total reclassified into shorter recovery periods

5-Year Property $64,125

45%

7-Year Property $21,375

15%

15-Year Property $57,000

40%

Estimated Year-1 Tax Savings $52,725

Illustrative estimate. Final allocations vary based on property facts and report findings.

Method

Year-1 Deduction

Difference

Standard (39yr straight-line)

$19,231

—

With Cost Segregation + Bonus

$142,500

+$123,269

Estimated deduction based on typical cost segregation allocations for office properties. Actual study results may vary based on property-specific analysis including age, condition, renovations, and local construction costs.

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Why Cost Segregation Works for Office Buildings

Office buildings depreciate over 39 years by default, making cost segregation especially impactful. Interior buildouts — tenant improvements, specialized HVAC zoning, raised flooring for data cabling, built-in cabinetry, conference room finishes, and kitchen/break room equipment — all qualify for 5-year or 7-year MACRS classification.

The 15-year class captures parking lots, sidewalks, exterior lighting, landscaping, signage, and site drainage. For multi-tenant office buildings, common-area finishes in lobbies, elevator cabs, and shared restrooms also contribute to reclassifiable components.

With 100% bonus depreciation permanently restored, the full reclassified amount is deductible in year one. Office investors typically find that 19-25% of the depreciable basis can be accelerated from the 39-year schedule into shorter recovery periods.

Who This Example Applies To

Office building investors and owner-operators
Multi-tenant office property owners
Medical office investors (specialized buildouts increase reclassification)
Investors acquiring recently renovated or built-to-suit office space

Office reclassification rates depend heavily on tenant improvement quality, HVAC complexity, and common-area finish levels. Properties with recent buildouts tend to have higher reclassification percentages. Basis assumes 25% land allocation.

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Compare: $1,000,000 Across Property Types

Property Type	Accelerated	Tax Savings	Study Cost	ROI
Airbnb / Short-Term Rental	$240,000	$88,800	$1,195	74x
Multifamily	$176,000	$65,120	$1,495	44x
Rental Property	$160,000	$59,200	$1,195	50x
Office	$142,500	$52,725	$1,495	35x

Frequently Asked Questions

What is a cost segregation study? ▼

A cost segregation study is an engineering-based analysis that reclassifies components of your property into shorter IRS depreciation categories (5, 7, and 15 years) instead of the default 27.5 or 39 years. This accelerates your depreciation deductions, reducing your tax bill in the early years of ownership.

Why is cost segregation more impactful for commercial properties? ▼

Commercial properties depreciate over 39 years by default — 42% longer than the 27.5-year residential schedule. This means cost segregation provides proportionally greater acceleration: reclassifying components from 39 years to 5 years represents a 34-year speedup, compared to a 22.5-year speedup for residential properties.

How long does a cost segregation study take? ▼

Our studies are delivered in 3-5 business days. You provide the property address, purchase price, and closing date — we handle everything else using assessor records, satellite imagery, and construction cost databases. No site visit or tenant disruption required.