Real estate investors often hear that cost segregation can “move depreciation forward,” but the practical question is more specific: what percentage of a building can actually be reclassified into shorter-life property to unlock faster write-offs? The answer depends on the building type, how it was built, what’s inside it, and how thoroughly the study documents assets under IRS rules. In this guide, you’ll learn what drives the percentage of building eligible for cost segregation accelerated depreciation, how typical ranges differ for multifamily, office, retail, hospitality, and industrial properties, and which building components usually create the biggest opportunities.
If you want a high-confidence strategy rather than a rough guess, Cost Segregation Guys can review your property profile and explain how a study typically treats your building’s asset mix, without relying on broad averages that may not match your construction reality. If you’re evaluating a Cost Segregation Study for Residential Rental Property, understanding these percentages early can help you model your cash-flow impact and tax planning timeline.
What “Eligible Percentage” Really Means
When people talk about the “eligible percentage,” they usually mean the portion of the total depreciable basis that can be reclassified from long-life real property (generally 27.5 years for residential rental buildings and 39 years for nonresidential buildings) into:
- 5-year property (certain personal property)
- 7-year property (some equipment/furnishings, depending on use)
- 15-year property (certain land improvements)
Those shorter recovery periods create accelerated deductions compared to straight-line depreciation over 27.5 or 39 years. So, the percentage of building for cost segregation accelerated depreciation is not a fixed IRS number. It’s an outcome of engineering-based asset identification, cost estimation, and defensible classification.
A key point: eligibility is asset-driven, not building-driven
Cost segregation does not change the “building” itself. It identifies components within the project—finishes, specialty systems, site improvements, and certain equipment- that are properly categorized as shorter-life assets based on function and use.
The Core Drivers of the Eligible Percentage
1) Property type and tenant use
Different properties have different “personal property density.”
- Hospitality (hotels) often contain higher concentrations of shorter-life assets (FF&E, specialized finishes, signage, and extensive site features).
- Retail may have a moderate-to-high percentage depending on buildouts, décor packages, and tenant improvements.
- Industrial/warehouse tends to have lower eligible percentages unless there are specialized process systems.
- Multifamily varies significantly based on amenity packages and site improvements.
2) Level of interior buildout and finish quality
Luxury finishes, amenity spaces, clubhouses, fitness centers, and common-area upgrades can increase shorter-life components. Conversely, minimal finishes can lower the reclassifiable portion.
3) Site improvements and external assets
Parking lots, curbs, sidewalks, landscaping, fencing, lighting, signage, and drainage features commonly fall into 15-year property categories. Properties with significant site work can meaningfully increase the eligible percentage.
4) Renovations and tenant improvements
New construction is not the only candidate. Renovations can create substantial reclassification opportunities, especially when improvements are documented with detail (scope, invoices, and as-built records).
5) Documentation quality and methodology
A robust study uses engineering review, cost detail, and supportable allocation methods. Poor documentation can reduce confidence and may lead to conservative outcomes.
Typical Ranges by Building Type
The ranges below are common in practice, but they are not guarantees. Your results can land above or below these bands depending on construction specs and asset mix. A proper study will justify classifications based on asset function rather than relying on generic percentages.
Multifamily (apartments, residential rentals)
- Common range: 15%–30% into 5-, 7-, and 15-year property
Drivers: amenities, landscaping, lighting, parking, fencing, pool structures, and upgraded interior packages.
Office
- Common range: 10%–25%
Drivers: specialized electrical, cabling, dedicated HVAC zones, upgraded finishes, and site improvements.
Retail (shopping centers, standalone stores)
- Common range: 15%–35%
Drivers: decorative finishes, dedicated lighting, signage, specialized power, storefront systems, tenant buildouts.
Hospitality (hotels)
- Common range: 20%–45% (sometimes higher with major FF&E and extensive site features)
Drivers: room finish density, common spaces, signage, exterior features, and operational systems.
Industrial/Warehouse
- Common range: 5%–15% (can increase with specialized process systems)
Drivers: site improvements, specialized power, process-related installations, dedicated mechanical systems.
These ranges help you frame the percentage of building eligible for cost segregation accelerated depreciation, but your best next step is to map your building’s “asset density” rather than assume a benchmark.
If you want a more precise estimate tailored to your project rather than broad averages, Cost Segregation Guys can evaluate your building’s characteristics and explain how different components are typically classified, so your model aligns with defensible study logic instead of generic assumptions.
What Typically Qualifies for a 5-Year Property
5-year property generally includes assets that function as personal property rather than structural building components. Common examples include:
- Certain carpeting and removable floor coverings
- Specialty lighting tied to display or task needs
- Dedicated electrical for specific equipment or tenant use
- Millwork and certain decorative elements are not integral to the building structure
- Certain window treatments and removable partitions (depending on facts)
- Equipment and items used in operations (context dependent)
The more a property relies on specialized interior features, especially in retail, hospitality, and amenity-rich multifamily, the more likely it is to have a higher eligible percentage.
What Typically Qualifies for a 15-Year Property
Land improvements are often a major contributor and can be overlooked by owners in modeling benefits. Common examples include:
- Parking lots and paving
- Sidewalks and curbs
- Fencing and gates
- Outdoor lighting
- Landscaping and irrigation
- Signage and monument signs
- Drainage systems and site grading are directly tied to improvements
If your project includes extensive site work, your percentage of building eligible for cost segregation accelerated depreciation may increase even if the building interior is relatively basic.
How Allocations Are Determined in a Study
A high-quality cost segregation study typically follows an engineering-based approach that includes:
- Asset identification (review plans, specs, and on-site observations where applicable)
- Quantification (measurements and takeoffs, when necessary)
- Cost assignment (using contractor data, cost segregation databases, or estimating tools)
- Classification support (tying assets to appropriate recovery periods and guidance)
- Reconciliation (ensuring total allocated costs tie back to the project basis)
This is why two properties with the same purchase price can yield different eligible percentages. The outcome depends on what was actually built and how it was documented.
Special Considerations: Residential Rentals and Primary Residences
Residential rentals
For rentals, the building is generally a 27.5-year property, but significant portions may be carved out into 5- and 15-year categories when properly supported. Amenity packages and exterior improvements often play an outsized role.
Primary residence
Rules can be more restrictive and fact-dependent, and benefits may not apply in the same way as investment property. If you’re considering Cost Segregation on Primary Residence, it typically requires careful analysis of business use, rental use, and specific tax circumstances. You should approach this area with more caution and professional review to avoid assumptions that apply only to investment properties.
The Biggest Factors That Push Percentages Higher
If you are trying to estimate the percentage of building for cost segregation accelerated depreciation, these features frequently increase the reclassifiable portion:
- Extensive hardscape (parking, curbs, sidewalks, retaining walls)
- Significant landscaping and exterior lighting
- Higher-end interior finishes and amenity buildouts
- Specialized electrical and plumbing tied to equipment or tenant needs
- High-density decorative features (retail/hospitality)
- Renovations with clear cost detail and scope documentation
Conversely, simple industrial boxes, minimal exterior improvements, and limited interior buildouts tend to lower the eligible percentage.
Common Misconceptions About “Eligible Percentage”
Misconception 1: “There is a standard IRS percentage.”
There is no official IRS chart that says, “X% is always eligible.” The eligible percentage is a byproduct of classification analysis.
Misconception 2: “New builds always produce higher percentages.”
Not necessarily. Some new builds are simple and functional. Some older properties have extensive improvements and amenities. Results depend on asset content, not project age.
Misconception 3: “Purchase price determines eligibility.”
Purchase price sets the basis, but it doesn’t dictate how costs are classified. Two buildings purchased for the same amount can have different eligible percentages.
Modeling the Tax Impact Without Overpromising
For planning purposes, investors often want a reasonable scenario analysis. A practical method is:
- Start with a conservative range for your property type (from the earlier section).
- Adjust up or down based on known features:
- Heavy site work → move higher
- Amenity-rich interiors → move higher
- Minimal finishes → move lower
- Heavy site work → move higher
- Confirm with a professional review before final tax planning.
Practical Checklist: What to Gather Before a Study
To maximize accuracy and defensibility, assemble:
- Settlement statement or purchase documents
- Construction budget, schedule of values, and pay applications (if available)
- Drawings: architectural, MEP, civil/site
- Change orders and invoicing detail
- Asset lists (FF&E, equipment, specialty items)
- Photos of interiors, exteriors, and amenities
- Details on tenant improvements and use
Better input data typically means less estimation and a cleaner support trail.
Conclusion: Turning “Percentages” Into a Defensible Plan
There is no single number that applies to every building, but the framework is consistent: the eligible percentage is driven by asset composition, site improvements, interior buildouts, and how well those costs are documented and classified. When you understand these drivers, you can forecast outcomes with greater accuracy and avoid relying on averages that don’t match your property.
Ultimately, the percentage of building for cost segregation accelerated depreciation is best treated as a property-specific result, not a rule of thumb. If you want a clear estimate and a defensible strategy tailored to your building type and scope, Cost Segregation Guys can help you evaluate the opportunity and determine whether a study aligns with your tax goals, especially when timing, cash flow, and documentation quality matter most.
