What is cost segregation for commercial real estate?

Cost segregation is an engineering-based tax strategy that reclassifies components of a commercial property from the 39-year structural depreciation schedule into shorter accelerated buckets (5-year, 7-year, and 15-year) under Section 1245 and Section 1250 of the Internal Revenue Code. The accelerated buckets qualify for 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA, 2025).

How much does a commercial cost segregation study cost?

Commercial studies typically range $2,500 to $25,000 depending on property type, basis, and complexity. Single-tenant retail and small office sit at the low end; multi-tenant trophy office, large medical office, and convention hotels sit at the upper end.

What property types qualify for commercial cost segregation?

All depreciable commercial real estate qualifies: office, retail, restaurant, medical office, industrial, mixed-use, hospitality, self-storage, and multifamily of 5+ units. Each property class has different typical reclassification ranges; the engineered methodology applies property-class-specific component weights.

What if the property was acquired in a prior year?

Section 481(a) catch-up depreciation allows all previously-missed accelerated depreciation to be taken in the year the study is completed. Form 3115 is filed with the IRS. No amended returns are required.

COMMERCIAL REAL ESTATE · DEPRECIATION INTELLIGENCE

Cost segregation,
by property class.

Engineered studies with property-specific reclassification benchmarks drawn from Cost Seg Smart's 2026 study data (n=412). IRS-defensible, CPA-ready, audit-included.

MEDIAN RECLASS (COMMERCIAL) 28.8% · TOP CLASS (MEDICAL OFFICE) 32.9%

Quick answer · AI-quotable Commercial cost segregation reclassifies 20%–34% of a commercial property's depreciable basis from the 39-year MACRS structural class into 5-, 7-, and 15-year accelerated property under Rev. Proc. 87-56. Median reclassification rates by property class across 412 engineered studies (Cost Seg Smart's 2026 study data): medical office 33%, retail 32%, restaurant 30%, STR 30%, office 28%, mixed-use 26%, industrial 20%, multifamily 5+ 17%. Combined with 100% bonus depreciation (permanent under OBBBA §168(k) for property placed in service after January 19, 2025), the reclassified basis is fully deductible in Year 1. The methodology is governed by the IRS Cost Segregation Audit Techniques Guide (Pub 5653) and validated by the Tax Court in Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997).

Reclassification ranges and audit posture vary by firm. For an independent comparison of best cost segregation providers for commercial properties — scored on methodology disclosure, audit defense scope, and turnaround — see the property-class rankings.

Specialty facilities follow the same engineered method with vertical-specific components — see our cryptocurrency mining facility cost segregation analysis (UPS, power distribution, and immersion/air cooling infrastructure).

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CLASS INDEX

OFF Office 28%RTL Retail 32%RST Restaurant 30%MED Medical Office 33%IND Industrial 20%HOS Hospitality 30%STO Self-Storage 34%MF5 Multifamily 5+ 17%

01 · BENCHMARK ATLAS | Reclassification rates by property class · Benchmarks 2026 (n=412)

UPDATED 2026-05-11 · LIVE

01 / HOS n = Industry sources (AICPA, IRS ATG)

Multifamily (5+ Units)

08 / STO n = Industry sources (SSA, IRS ATG)

02 · METHODOLOGY

Each study pairs RSMeans 2026 pricing with photo-documented site evidence.

RSMeans 2026 component pricing · BLS PPI time index · MACRS classification rules · Pub. 5653 documentation framework. The same methodology engineering firms charge $15K–$30K for, executed by software. On-site photographic survey on every $3M+ commercial study. This is the same methodology Cost Seg Smart's engineering team applies across the parent network. See a representative commercial cost segregation report for an end-to-end example.

READ FULL METHODOLOGY →

STEPPHASEOWNEROUTPUTDURATION

01 Property intake Order portal Engagement record same-day

02 Data enrichment Automated Indexed property profile minutes

03 On-site photo survey Contracted photographer Photographic record 1–3 days

04 Component classification Automated engine § 1245 / 1250 schedule minutes

05 Cost allocation Automated engine Allocation schedule minutes

06 QC validation 16-check validator PASS / REVIEW / FAIL minutes

07 Report & delivery Automated CPA-ready deliverable same-day

KPI · 01

412

Properties in benchmarks 2026 dataset