Retail Cost Segregation Case Study

In September of 2025, Client SP acquired a small retail plaza with a depreciable basis of $3.93M.  Property SP was a single-story shopping center with ample parking.  It housed 4 tenants: a medical office, a quick-service restaurant, and two clothing stores.

Client SP had worked with the consulting team on a previous property acquisition and were very pleased with the results.  Upon closing on Property SP, they immediately reached out to the team to discuss tax strategies.

Assessment

After analyzing their new plaza, the team proposed a Cost Segregation Study to maximize tax savings via front-loaded depreciation deductions.

While cost segregation can be performed retroactively to “catch-up” on missed depreciation, it’s ideal to perform a study soon after placing a property in service to maximize deductions from day 1. Client SP would be able to capitalize on this ideal timeline.

Commonly Segregated Assets in Office Buildings

The team felt confident that Plaza SP would be a good candidate for a Cost Segregation study, particularly with its interesting assortment of tenants.  Retail facilities generally contain many assets that may be accelerated into shorter class lives, accelerating their depreciation and taking advantage of the time value of money.  The medical office and restaurant add more unusual assets to the mix, increasing the property’s likely yield.

5-Year Assets

• Clothing stores: display fixtures and cabinetry, specialized tenant build-outs and finishes, lighting systems, mirrors, carpet, wallpaper
• Medical office: specialized medical equipment and dedicated outlets and wiring, sinks, cabinets, counters, vinyl flooring
• Restaurant: specialty kitchen equipment, beverage dispensers with specialty tubing, fire extinguishers and hoods, ice machine, dishwasher, associated rough plumbing, walk-in freezer and cooler
• Closed-circuit surveillance, intercom and sound systems

15-Year Assets

• Paved parking areas and sidewalks
• Sod lawns, planting beds, and other decorative landscaping
• Concrete pavers
• Illuminated bollards and signage

Additionally, the One Big Beautiful Bill Act (OBBBA) recently restored bonus depreciation to 100%, further boosting the power of a Cost Segregation Study.

Bonus depreciation is an incentive above and beyond accelerated depreciation, and may be applied to assets with class lives of 20 years or less.  Historically, bonus depreciation has permitted the additional write-off of part of the value of eligible assets.  Properties placed-in-service on/after January 20, 2025 – like Property SP — can now write off the entire value of eligible assets.

Study Process and Documentation

An experienced engineer reviewed all property documentation before visiting Property SP.  While on site, the engineer did a thorough walk-through of the property, taking copious notes and photographs of all indoor and outdoor features.  He visited each tenant separately.

The engineer then reconciled his notes with client-supplied documentation, and began the job of identifying, quantifying, and costing property assets.

After the report was completed, technical and tax reviews were performed to ensure precision and accuracy.

The report was delivered 4 weeks after the site visit was completed.

Outcome

The engineer was able to move over 20% of assets into shorter-lived class lives:

• 7% of assets into 5-year personal property
• 3% of assets into 15-year land improvements

The study yielded a first-year tax savings of $308,887.

Client SP was glad they had the team to guide them through this process.