What a cost segregation study does
Commercial buildings depreciate over 39 years by default. A cost segregation study — an engineering-based analysis — identifies components that qualify as personal property or land improvements: interior finishes, partitions, dedicated electrical and plumbing, flooring, cabinetry, and site work. These reclassify to 5, 7, or 15-year schedules instead of 39.
On a typical commercial purchase, 20–30% of the building's value can often be reclassified, dramatically increasing first-year depreciation.
Why built-out office space is a strong candidate
A fully built-out office suite is dense with reclassifiable components: glass partitions, millwork, specialty lighting, kitchen plumbing and appliances, dedicated HVAC zones, and technology infrastructure. The more finished the interior, the more a study typically finds.
Practical considerations
- Order the study in the year of purchase for maximum benefit
- Use a reputable engineering-based firm — the IRS expects methodology
- Benefits are largest for owners with passive income to offset
- Bonus depreciation rules change; confirm current percentages with your CPA
A current example: Suite 200 at 599 Tamiami Trail N
This fully built-out executive office condo in the heart of Old Naples is offered at $1,500,000 with a 4.67% cap rate and $70,000 in net operating income. The tenant is in place on a lease running through 2029, so a buyer steps directly into stabilized income with no lease-up risk.
Fee-simple title, a prestigious downtown address, and a turn-key buildout make it a clean, quick close — important for anyone working inside a 1031 exchange timeline or placing capital before year-end.