Cost Segregation in Retail Properties

Cost segregation is a strategic tax planning tool that can significantly benefit owners of retail properties. By accelerating depreciation, cost segregation allows property owners to maximize tax savings early in their investment. This case study examines how a retail property owner utilized cost segregation to reduce tax liabilities and improve cash flow. 

The below case study demonstrates how cost segregation in retail properties can result in substantial financial benefits for property owners.

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Retail Case Study: How One Investor Saved $120K with Cost Segregation

Subject Property:

• 30,000 square foot shopping center

• Consists of multiple tenant spaces, parking lots, and common areas

• Purchase Price: $5,000,000

In the case of this retail property, the cost segregation study identified significant portions of the building's components that could be depreciated over 5, 7, or 15 years, rather than the standard 39 years for commercial real estate.

Cost Segregation Strategy:

A qualified cost segregation firm conducted a detailed, engineering-based study to reclassify assets and accelerate depreciation.

Highlights of the study:

• Identified $1.5 million in assets eligible for 5, 7, and 15-year depreciation

• Included items like interior finishes, HVAC systems, lighting, and parking lot improvements

• Allowed significant deductions much earlier than the standard 39-year schedule

Financial Impact:

• Year 1 Tax Savings: $120,000

• Improved cash flow reinvested into property enhancements

• Higher tenant satisfaction + increased occupancy

• Ongoing annual savings for continued reinvestment

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Cost Segregation turned a traditional retail investment into a high-performance tax strategy. It freed up capital, created reinvestment opportunities, and gave the property owner a competitive edge.

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