Commercial Real Estate & Hotel Cost Segregation
Engineering- and Appraisal-Driven | Nationwide
Cost segregation is a proven tax and cash-flow optimization strategy for commercial real estate and hospitality assets — including office buildings, hotels, retail centers, mixed-use developments, and specialized commercial properties.
When executed using a rigorous engineering- and appraisal-driven methodology, cost segregation allows owners to accelerate depreciation on qualifying components of a property while maintaining IRS defensibility and audit integrity.
At us, cost segregation is treated as a valuation discipline — not a mechanical reclassification exercise.
Tax Update — Restored 100% Bonus Depreciation
Federal Law Update (Effective January 20, 2025)
Recent federal legislation restored 100% bonus depreciation, representing a major shift toward pro-investment, pro-capital tax policy.
Key Provisions
- 100% bonus depreciation restored
- Applies to qualifying property placed in service on or after January 20, 2025
- Eliminates the previously scheduled phase-down
- Applies to new and used property (original-use requirement removed)
This change significantly increases the value of properly executed cost segregation studies for CRE and hotel assets — provided the underlying classifications are defensible.
Special Rule for Manufacturing QPP — IRC §168(n)
The Act also introduced enhanced treatment for Qualified Production Property (QPP) under IRC §168(n):
- Manufacturing QPP eligible for 100% bonus depreciation through 2029
- Particularly impactful for:
- Domestic manufacturers
- Supply-chain and industrial operators
- Facilities with process-driven improvements
This further underscores the importance of accurate functional classification and documentation in cost segregation studies, especially for mixed-use and production-adjacent commercial properties.
What Cost Segregation Means for CRE & Hotels
Commercial and hospitality properties consist of multiple asset classes with different tax recovery lives:
§1245 Property
(5-, 7-, and 15-year recovery lives — often eligible for 100% bonus depreciation)
§1250 Property
- 27.5-year straight-line depreciation (residential rental)
- 39-year straight-line depreciation (non-residential real property)
Non-Depreciable Land
A cost segregation study identifies and reclassifies qualifying components so depreciation more closely reflects the economic life and function of assets, not merely their structural form.
Why Engineering and Appraisal Discipline Matter
Generic or percentage-based studies frequently fail under IRS scrutiny — particularly for larger CRE and hospitality assets where land, structure, and functional systems must be carefully separated.
Our methodology integrates:
- Engineering-based identification of building systems
- Reconstruction of Replacement Cost New (RCN)
- Recognition of physical and functional depreciation
- Market-based and residual land value abstraction
- Defensible allocation of §1245, §1250, and land components
This approach produces documentation that is:
- Audit-ready
- Institutionally defensible
- Consistent across asset types and portfolios
Example — Application of 100% Bonus Depreciation
14-Story Office Building
Purchase Price: $37,170,000
Improvements Basis (excluding land): $30,985,316
Cost Segregation Results
- 5-year property: $5,888,901 (19.01%)
- 7-year property: $154,563 (0.50%)
- 15-year property: $324,665 (1.05%)
Total eligible for 100% bonus depreciation (Year 1):
$6,368,129
Comparison to Prior Depreciation Treatment
- First-year depreciation under prior rules: $2,432,923
- Incremental first-year depreciation: $3,935,206
Assuming a 37% marginal tax rate, the additional first-year tax benefit equals approximately:
$1,456,026
(Actual tax impact varies by taxpayer and entity structure.)
Qualifying CRE & Hotel Property Types
Cost segregation may apply to:
- Office buildings
- Hotels and motels
- Retail and grocery stores
- Restaurants
- Industrial and warehouse facilities
- Apartments and mixed-use properties
- Gas stations and car washes
- Nursing homes and healthcare facilities
- Golf courses
- Auto-related properties
- Leased tenant improvements
Any commercial or investment real property placed in service since January 1, 1987 may be eligible.
Critical timing is the placed-in-service date by the current owner, not the original construction date.
Cost Segregation Study Benefits
A properly executed cost segregation study may provide:
- Accelerated depreciation deductions
- Improved early-year cash flow
- Enhanced capital recovery timing
- Better alignment of tax and economic asset lives
- Audit-ready documentation for CPAs and advisors
Nationwide Coverage
Cost segregation is governed by federal tax law.
Alpha Consulting US serves CRE and hotel owners nationwide, supporting:
- Single assets
- Renovations and repositionings
- Multi-property portfolios
Begin with a Preliminary Review
We offer a no-fee preliminary feasibility review to assess suitability and scope before a full engagement.
This ensures:
- Strategic fit
- Efficient scoping
- No unnecessary study costs
Request a Preliminary Cost Segregation Review
If your property involves complex systems, tenant improvements, specialized infrastructure, or recent acquisition or renovation, a properly structured cost segregation study may materially improve capital recovery — but only when executed with engineering rigor and appraisal discipline.