Cost Segregation for

Retail properties default to a 39 year tax life. They vary widely from small single-tenant buildings to regional malls with 4 or 5 anchor tenants, infill specialty stores and food courts. Some have huge parking areas that can be used for local festivals, others have parking structures while others offer on-street parking.

Retail properties tend to experience a high tenant turnover and when the property owner has necessary information the improvements can be retired correctly as tenant spaces are reconfigured. This has only been applicable in situations where the property owner has a basis in the leasehold improvements.

Property that is typically reclassified to 5 year tax lives includes point-of-sales/data cabling, decorative lighting, glued on finishes, removable millwork, telephone systems, certain aspects of the electrical, plumbing and HVAC systems and window coverings. Land improvements are reclassified to a 15 year life.

Accelerating the depreciation on 10% – 35% of the capitalized costs is typical, depending on the mix of tenants, quality of the finishes, and extent of the land Improvements.

Cost Segregation Case Study – Big Box Retail Center


The $15,000,000 property had a home center, 2 home furnishing tenants, a specialty grocery store, a mattress retailer and 4 food service tenants. There were four buildings enclosing 300,000 square feet. There was approximately 600,000 square foot parking area which included asphalt, concrete, sidewalks, curbs, underground rainwater runoff and landscaping that could be treated as Land Improvements. The interior retail/food service spaces had millwork, data, point-of-sale, vinyl flooring, decorative light, electrical, plumbing and HVAC that could be treated as Personal Property.


The Source Advisors Cost Segregation engineers were engaged to analyze the acquisition cost. They then applied a cost model to allocate the purchase price to various trades and building components. They conducted a thorough inspection of the property where estimates were performed. Key property personnel were also interviewed. A detailed report was delivered, identifying and documenting all of the components that qualify for a shorter tax life.


Source Advisors reclassified 10% or $1,500,000 as 15-year Land Improvements and 15% or $2,250,005 as 5-year tangible personal property. This is toward the high end for a Big Box property. The results were driven up by the specialty grocer and high-end food service tenants.

Chart by Visualizer
Cost Segregation for Retail
*Assuming a 35% tax rate, 6% discount rate, and that the property will be held for 39 years