Cost Segregation on a $2M Retail: $300,000 in Accelerated Depreciation

A $2M retail property benefits from extensive tenant improvement buildouts and site improvements that create a rich pool of reclassifiable components under cost segregation.

$300,000 Accelerated Depreciation

$111,000 Est. Year-1 Tax Savings

37x Return on Study Cost

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Property Type

Purchase Price

$111,000

Estimated Year-1 Tax Savings

$300,000

Accelerated Deductions

$2,995

Study Cost

37x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $2,000,000 Retail

$2,000,000 Retail property — cost segregation depreciation example

A retail property purchased for $2,000,000 has a depreciable basis of approximately $1,500,000 (75% after the 25% commercial land allocation). Retail buildings depreciate over 39 years by default. Cost segregation reclassifies $300,000 into accelerated MACRS classes, capturing tenant improvement buildouts (5-year), specialized retail electrical and plumbing (7-year), and parking lot paving, signage, landscaping, and exterior lighting (15-year).

With 100% bonus depreciation, the full $300,000 is deductible in year one, producing $111,000 in federal tax savings at the 37% bracket. The study costs $2,995, delivering a 37x return. Reclassification amounts vary based on the property's age, the extent of tenant improvements, and the ratio of interior buildout to shell construction.

Retail properties often produce higher-than-average 15-year property reclassification due to the parking and site improvement requirements of retail operations. Parking lot paving, curbing, striping, cart corrals, sidewalks, exterior signage, and landscaping all fall into the 15-year MACRS class. For multi-tenant retail strip centers, each tenant's interior buildout adds further 5-year reclassification, compounding the benefit.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$300,000 total reclassified into shorter recovery periods

5-Year Property $135,000

45%

7-Year Property $45,000

15%

15-Year Property $120,000

40%

Estimated Year-1 Tax Savings $111,000

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

Method

Year-1 Deduction

Difference

Standard (39yr straight-line)

$38,462

—

With Cost Segregation + Bonus

$300,000

+$261,538

Estimated deduction based on typical cost segregation allocations for retail 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 Retail Properties

Retail properties combine tenant improvement buildouts with significant site work, creating a strong reclassification profile. Interior components — display fixtures, specialized lighting, point-of-sale infrastructure, HVAC zoning, and tenant-specific finishes — qualify for 5-year or 7-year MACRS classification.

The 15-year class is particularly robust for retail: parking lots (often the largest single reclassifiable component), sidewalks, drive-through lanes, signage, canopies, landscaping, exterior lighting, and stormwater management systems. Strip centers and standalone retail properties with large parking areas benefit disproportionately.

With 100% bonus depreciation, the full accelerated amount is deductible in year one. Retail investors typically see 20-28% of the depreciable basis reclassified from the default 39-year schedule.

Who This Example Applies To

Retail property investors (strip centers, standalone retail, shopping centers)
NNN lease investors acquiring retail assets
Owner-operators of restaurant or specialty retail buildings
Investors acquiring retail with recent tenant improvements

Retail reclassification rates depend on parking lot size, tenant improvement quality, and signage. NNN properties where tenants own the improvements may have lower reclassification rates for the landlord. Basis assumes 25% land allocation.

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Compare: $2,000,000 Across Property Types

Property Type	Accelerated	Tax Savings	Study Cost	ROI
Commercial Property	$285,000	$105,450	$2,995	35x
Retail	$300,000	$111,000	$2,995	37x
Multifamily (5+)	$352,000	$130,240	$1,495	87x

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.