Cost segregation for small office buildings: What you need to know

Different building types have different variables that affect cost segregation studies. Small office buildings are unique compared to other types of commercial properties, so those variables come into play in their own way. 

In this article, we’ll dive into three ways that cost segregation for office buildings is unique compared to other commercial properties.

Cost Segregation for Small Office Buildings

1. Complexity and detail

Smaller office buildings, and all smaller buildings in general, will have fewer complex structures and unique components than larger commercial properties, such as factories or retail shopping centers. This can make the cost segregation process simpler and easier, leading to a faster timeline for gathering information and completing the study.

2. Shorter depreciation lifespan

Office buildings are full of components that can be considered ‘personal property’ and are eligible for the fastest 5-year depreciation period. This can increase the initial tax savings that a cost segregation study provides. There are also significant ‘land improvements’ that are eligible for the longer depreciation period of 15 years, which is still better than the standard 39.5-year period. 

Components of an office building that fit into these faster depreciation timelines include: 

Personal property (5-year depreciation period):

  • Office furniture 
  • Office equipment (computers, printers, etc.)
  • Window treatments
  • Carpeting and other types of flooring 
  • Lighting fixtures

Mechanical and electrical systems (7-year depreciation period)

  • Data cabling
  • HVAC systems
  • Security systems

Land improvements (15-year depreciation period):

  •  Parking lots
  •  Sidewalks
  •  Landscaping
  •  Fencing
  •  Retaining walls
  •  Outdoor lighting

Qualified Improvement Property (15-year depreciation period):Interior improvements to office buildings made after the building was first placed in service can be counted as qualified improvement property. This accelerated depreciation tool applies only to non-residential real estate, including offices.

Commercial Cost Segregation

3. Tenant improvements

Tenants are constantly making improvements and customizing their leased space in small office buildings, while the property owner still owns and is responsible for these improvements. Many of these improvements can be depreciated over a shorter period, creating additional tax savings. 

Some examples of tenant improvements that qualify for accelerated depreciation in a cost segregation study include: 

  • Interior Partitions: When a tenant adds or modifies interior walls or partitions.
  • Lighting and Electrical: Upgrades or modifications to the lighting or electrical systems to the tenant’s needs.
  • Flooring: Tenants may install new carpeting or other types of flooring to create a better work environment. 
  • Plumbing: Tenants may add or modify plumbing fixtures for things like office kitchens or additional employee bathrooms. 
  • Specialized Equipment: Tenants can install specialized equipment, such as data cabling or security systems, to improve the office environment or networking capabilities. 
  • Ceilings: Tenants may modify ceilings, such as installing a drop ceiling or adding soundproofing, to improve their office space. 

Custom Cabinetry or Built-ins: Tenants might install custom cabinetry or built-in furniture to create permanent storage space or seating.

Commercial Cost Segregation

Commercial Property Refund can help you get your office building cost segregation study done faster

Because of their simplicity, small office building cost segregation studies shouldn’t require a team of engineers to complete. Commercial Property Refund has developed a proprietary software system that speeds up the cost segregation process and removes the need for engineers to get involved.

Working with a CPA, you can use Commercial Property Refund to get your cost segregation study done faster and for less, with an estimated ROI of 10-30X. The process is simple to complete and follows IRS best practices.

Looking to get a cost segregation study done on your office building before the next tax season?

Check out our free Commercial Property Refund Calculator to estimate how much you can save on your next return.

About Author

Richard Bourgault

Graduating from Georgia Tech with a degree in Electrical Engineering, Richard has gained over a decade of expereince in Cost Segregation coupled with software UX.

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