Mixed-use is the one commercial type where the first question is not what reclassifies, but what recovery period the building is on. Cost Seg Smart models mixed-use as a first-class type with its own component library and blends the result by gross building area, which is why its modeled central sits well below a pure retail or restaurant property.
The signature fact: a mixed-use building is not automatically 39-year property. Under the residential rental definition, a building generally qualifies as residential rental property when 80% or more of its gross rental income comes from dwelling units, which puts the entire building on a 27.5-year life rather than 39. A ground-floor retail bay in an otherwise residential building can cross that line in either direction as leases turn over. Establish the income split before anyone starts classifying components, because it changes the depreciation of everything that is not reclassified.
Modeled range for mixed-use
| Configuration | Modeled accelerated share |
|---|---|
| Residential-dominant, minimal commercial fit-out, structured parking | ~5–9% |
| Typical two-use building, retail or office ground floor over apartments | ~12% |
| Commercial-dominant with heavy tenant build-out and surface site work | ~20–32% |
The 5–32% figure is the engine’s quality-control envelope used to flag a study for review, not a distribution of client outcomes. The ~12% central is what the blended component model produces for a conventional two-use building. Mixed-use spreads wider than most types precisely because the label covers very different buildings.
What reclassifies in a mixed-use building
5-year personal property (Section 1245)
- Commercial tenant build-out: decorative and display lighting, storefront interior finishes, millwork and casework
- Kitchen and bar equipment where the ground floor is food service
- Unit appliances and cabinetry in the residential portion
- Amenity FF&E: lobby, fitness room, roof deck and lounge furnishings
- Low-voltage, security, access control, package-room systems and building IT
- Window treatments, floor coverings that are not permanently affixed, and interior signage
7-year specialty (Section 1245)
- Built-in commercial casework and specialty fixtures that function as furniture
15-year land improvements (Section 1250)
- Surface parking, drive aisles, curbing and wheel stops
- Site lighting, hardscape, plaza paving, landscaping and irrigation
- Monument and pylon signage, fencing, site drainage and detention
39-year or 27.5-year structural (Section 1250)
- Shell, podium structure, slabs, roof, elevators and stairs
- Structured and podium parking, which stays with the building rather than becoming a land improvement
- Base HVAC, domestic water, building electrical service and fire protection
- Corridors, demising walls and standard unit finishes
The recovery period on that last group is the 27.5 versus 39 question above, and it applies to the long-life portion of the whole building.
Two allocation problems worth getting right
Common areas. Lobbies, corridors, roofs, elevators and central plant serve both uses. A study should allocate them on a stated basis, normally gross building area, and say which basis it used. An allocation that is never written down is an allocation nobody can defend later.
Landlord versus tenant. In the commercial portion, some of the build-out is often the tenant’s asset and sits on the tenant’s depreciation schedule. Reclassifying it on the owner’s study puts the same improvement on two schedules. The lease and the tenant improvement allowance terms settle it.
Illustrative, modeled
On a $6.0M mixed-use building with roughly $4.8M of depreciable basis, twelve apartments over two retail bays and surface parking behind, a blended accelerated share near 12% moves about $575,000 into short-life pools. This is a modeled figure from the component engine rather than a completed client study; the retail fit-out level and the parking configuration move it the most.
Cost Seg Smart produces mixed-use studies from the dedicated mixed-use component library, blended by gross building area, with per-property figures produced at study time. Fees are published at costsegsmart.com.
FAQ
Is my building 27.5-year or 39-year property?
It depends on the share of gross rental income coming from dwelling units, generally measured at 80%, and it is tested year by year rather than fixed at purchase. A building can move between the two as the commercial space leases up or goes dark. This is a determination for your CPA, and it belongs at the front of the engagement because it sets the recovery period for the entire long-life portion.
Does the structured parking under the building count as a 15-year land improvement?
No. Parking built into the structure is part of the building. Surface parking on the site is a 15-year land improvement. The distinction is structural, not functional, and it is one of the larger dollar items in a podium building.
Should the residential and commercial portions be studied separately?
The engineering is done component by component across the whole building, then common elements are allocated between the uses on a stated basis. What matters is that the allocation basis is written into the study and applied consistently, not that the two halves are studied in isolation.
Our ground floor is vacant. Does that change anything?
It can. Vacancy affects the gross rental income test that drives the 27.5 versus 39 question, and it affects when the property is considered placed in service for the space that has never been tenanted. Both are CPA determinations, and both are worth resolving before the study is issued.