Cost Segregation Studies for Retail Properties

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Cost Segregation Analyses Performed

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Retail Cost Segregation
Studies
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01

What is Cost Segregation in Retail?

  • Cost segregation in retail is a tax planning strategy that helps owners of retail property accelerate depreciation deductions 
  • This engineering-based analysis identifies and quantifies components of a retail building 
  • Components are then reclassified into shorter-lived tax categories, resulting in accelerated depreciation, tax deferral, and increased cash flow 

02

What are the Benefits of Cost Segregation in Retail? 

  • A cost segregation analysis in retail can create $100K-$350K in federal tax benefits for every $1M spent.  Engineers generally accelerate 20-40% of assets in a retail property 
  • “Bonus” depreciation is an additional incentive that may be claimed above and beyond accelerated depreciation  
  • A quality cost segregation analysis of retail also provides the documentation necessary to support a host of other tax strategies, including Tangible Property Analysis, Partial Asset Dispositions, and EPAct 179D Energy-Efficiency Deductions  

03

Which Retail Assets are Commonly Segregated?

  • Shorter-lived 5-year assets may include:  
    • Carpet 
    • Wallpaper 
    • Window Treatments 
    • Counters and Cabinets 
    • Decorative Lighting 
    • Paddle Fans 
    • Fire Extinguishers 
    • Mirrors 
    • Signage 
    • Intercom and Sound Systems  
    • Alarm/Security Systems 
    • Specialty Plumbing and Electrical Systems 
  • Shorter-lived 15-year land improvements may include:  
    • Landscaping 
    • Paved Parking Lots 
    • Sidewalks  
ASCSP Certified Professionals on Staff

Cost Segregation Analysis in Retail: Case Studies  

Retail Cost Segregation Study:

Small Plaza Acquisition

Retail Cost Segregation Study: Small Plaza Acquisition

7,000SF

Single-story shopping center with 4 tenants and parking

Tenants

Medical Office, Hair Salon, Clothing Store, & Restaurant 

July 2022

Acquired and placed-in-service July 2022 

$3,927,694

Depreciable basis

Engineers Moved

11.7% to 5-Year
11.3% to 15-Year Land Improvements

$308,887

First Year Tax Savings

Retail Cost Segregation Study:

Large Plaza Acquisition

Retail Cost Segregation Study: Large Plaza Acquisition

19 Tenants

Two single-story buildings that house 19 tenants including several big-box retail anchors and a supermarket 

 

September 2023

Acquired and placed-in-service September 2023

$6,634,690

Depreciable basis

Engineers Moved

16.6% to 5-Year 

16.0% to 15-Year Land Improvements

$612,004

First Year Tax Savings

Retail Cost Segregation Study:

Regional Mall Look-Back Study

Retail Cost Segregation Study: Regional Mall Look

Developed in the 1970's

Property originally developed in 1970s, with several changes of ownership and multiple series of renovations

 

Tenants

Shopping mall consisting of 4 buildings:

Main mall building: 3-stories with 100+ tenants and two anchor structures 

Multi-story parking garage 

2 freestanding satellite buildings housing multiple retail and office tenants  

 

2021

This look-back study was performed in 2021. Scope includes historic assets still in service and over a dozen series of renovations

$83,592,323

Depreciable basis

Engineers Moved

9.5% to 5-Year 

26.6% to 15-Year Land Improvements 

0.5% to 15-Year QIP  

$7,765,122

First Year Tax Savings

Retail Cost Segregation Study:

Regional Mall Renovations

Retail Cost Segregation Study: Regional Mall Renovations

2022

The above regional mall underwent another series of improvements in 2022, primarily involving the conversion of office space to retail space in one of the freestanding buildings 

Previously Performed Study

Since Capstan had already performed the cost segregation study above, we were well-placed to analyze the subsequent phased renovations

 

$2,653,419

Depreciable basis

Engineers Moved

0.4% to 5-Year  

60% to 15-Year QIP 

$553,929

First Year Tax Savings

Cost Segregation Analyses Performed

Cost Segregation Analysis in Retail: FAQs  

What Types of Retail Properties Can Benefit from Cost Segregation?

Many types of retail properties may benefit from a cost segregation analysis, including properties that are:  

  • Recent Acquisitions 
  • Newly Constructed 
  • Pre-and Post-Renovation  

Properties that were placed-in-service years ago can be good candidates for a look-back cost segregation study.  By reclassifying assets to their correct lives, taxpayers can “catch-up” on all the depreciation they would have gotten had the study been performed on day one. 

Additionally, cost segregation can be performed on retail properties of any size:  

  • Small stand-alone retail stores (drugstores, dollar stores, etc.) 
  • Retail plazas with any number of tenants and anchors 
  • Large-scale freestanding regional malls  

Your cost segregation consultant can help you determine if your retail property is a good study candidate.  

Retail Properties Benefit from Cost Segregation

Is a Retail Cost Segregation Study Compliant with IRS Regulations?  

A quality retail cost segregation study complies with IRS Regulations, and an engineer-performed study is explicitly recommended by the IRS’ Cost Segregation Audit Techniques Guide.   

That said, it’s important to ensure that your cost segregation provider adds quality and value.  Be sure to do your homework before selecting a provider.   

How is a Cost Segregation Study for Retail Conducted? 

The cost segregation in retail process is quite straightforward:  

  • We gather information about you and your property.  
  • We provide a complimentary Estimate of Potential Benefits, along with a customized plan to maximize tax savings based on your needs and goals.   

If you decide to move forward with the study:  

  • A Capstan engineer visits your property, methodically walking it and taking many notes and photos to quantify each asset.   
  • The engineer will use his notes, along with client provided documents like site plans and rent rolls, to painstakingly assign costs to each asset.   
  • The assets will then be segregated into the aforementioned categories, and the results will be evaluated by two different reviewers for tax and technical accuracy.   
  • A thoroughly documented report containing spreadsheets, photos, graphical analysis, and 100+ pages of content will be delivered, along with the Capstan Warranty that promises no-cost defense in the unlikely event of an audit.  
Cost Segregation Study for Retail Conducted

How is a Cost Segregation Study for Retail Conducted? 

Timing of a cost segregation study in retail will vary based on project complexity, but reports are generally delivered within 30 days of the site visit.  

What are the Costs Associated with a Cost Segregation Analysis of Retail?  

The fees for cost segregation in retail will vary based on:  

  • Property size, type, location 
  • Property history/complexity 
  • What property information is readily available 
  • Number/type of tenants 

The usual return on investment for a cost segregation report is well over 10 to 1, and most taxpayers find that the fee is well outweighed by the benefit.   

How Can I Get a Cost Segregation Study for My Retail Property? 

If you’d like to learn more about cost segregation in retail, please reach out.  We’re here to help. 

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